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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended January 1, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from      to
 Commission File Number: 333-49821
 MSX International, Inc.
  Delaware
(State or other jurisdiction
of incorporation or organization)
    
    38-3323099
(I.R.S. Employer Identification No.)1950 Concept Drive, Warren, Michigan
(Address of principal executive offices)
    
    48091
(Zip Code)
 (248)299-1000
 o þ
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 þ o
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TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    7Item 1B.
    
    Unresolved Staff Comments
    
    
    14Item 2.
    
    Properties
    
    
    14Item 3.
    
    Legal Proceedings
    
    
    14Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14PART IIItem 5.
    
    Market for
Registrants Common Equity and Related Stockholder Matters
    
    
    15Item 6.
    
    Selected Financial Data
    
    
    16Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 8.
    
    Financial Statements and Supplementary Data
    
    
    35Item 9.
    
    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    81Item 9A.
    
    Controls and Procedures
    
    
    81Item 9B.
    
    Other Information
    
    
    82PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    82Item 11.
    
    Executive Compensation
    
    
    85Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    88Item 13.
    
    Certain Relationships and Related Transactions
    
    
    89Item 14.
    
    Principal Accountant Fees and Services
    
    
    91PART IVItem 15.
    
    Exhibits and Financial Statement Schedule
    
    
    93SIGNATURES
    
    
    
    
    96CERTIFICATIONS
AND EXHIBITSComputation of Ratio of Earnings to Fixed ChargesSubsidiariesCertification by Executive Vice President and CEO to Rules 13a-14(a)/15d-14(a)Certification by Executive Vice President and CFO to Rules 13a-14(a)/15d-14(a)Certification pursuant to 18 U.S.C. Section 1350Press Release dated April 17, 2006
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GLOSSARY
  APB
    
    Accounting Principles BoardAPB Opinion No. 25
    
    APB Opinion No. 25, Accounting for Stock Issued to EmployeesCadform
    
    Cadform  MSX Engineering GmbHCEO
    
    Chief Executive OfficerCFO
    
    Chief Financial OfficerCTS
    
    Creative Technology Services, Inc.CVC
    
    Citicorp Venture Capital Ltd.DaimlerChrysler
    
    DaimlerChrysler AGDraupner
    
    Draupner Associates ABEITF
    
    Emerging Issues Task ForceFASB
    
    Financial Accounting Standards BoardFiat
    
    Fiat S.p.A.FIN 46
    
    FASB Interpretation No. 46  Consolidation of Variable Interest EntitiesFIN 46-R
    
    FASB Interpretation No. 46  RevisionFord
    
    Ford Motor CompanyGeneral Motors
    
    General Motors CorporationMSXI
    
    MSX International, Inc.ISO
    
    International Organization for StandardizationMSXI Limited
    
    MSX International LimitedOEM
    
    Original Equipment ManufacturerPreferred Stock
    
    12% Series A Cumulative Mandatorily Redeemable Preferred StockSatiz
    
    Satiz S.r.l.SEC
    
    U.S. Securities and Exchange CommissionSFAS
    
    Statement of Financial Accounting StandardsSFAS No. 109
    
    SFAS No. 109, Accounting for Income TaxesSFAS No. 123
    
    SFAS No. 123, Accounting for Stock-Based CompensationSFAS No. 131
    
    SFAS No. 131, Disclosures about Segments of an Enterprise and Related InformationSFAS No. 142
    
    SFAS No. 142, Goodwill and Other Intangible AssetsSFAS No. 144
    
    SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived AssetsSFAS No. 146
    
    SFAS No. 146, Accounting for Costs Associated With Exit or Disposal ActivitiesSFAS. No. 150
    
    SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and EquityStock Option Plan
    
    MSX International, Inc. 2000 Stock Option PlanU.K.
    
    United KingdomU.S.
    
    United StatesWACC
    
    Weighted Average Cost of Capital
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PART I
 
 Item 1. Business.
 General
    Technical Service Offerings
  Fiscal Year EndedJanuary 1,
    
    
    January 2,
    
    
    December 28,2006
    
    
    2005
    
    
    2003(In thousands)Business
Outsourcing Services
    
    $
    169,155
    
    
    $
    177,964
    
    
    $
    173,814Human Capital Services
    
    
    177,136
    
    
    
    190,307
    
    
    
    231,907Engineering Services
    
    
    88,675
    
    
    
    86,034
    
    
    
    98,182Total net sales
    
    $
    434,966
    
    
    $
    454,305
    
    
    $
    503,903
  3




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Business Outsourcing Services
  
    
    Warranty solutions warranty process improvement consulting, claims assessment and
analysis, warranty approval and technical call centers, contract administration of
extended warranty programs, and management and operation of parts return centers;
    
    Retail Consulting Solutions customized consulting programs for automotive and
transportation industries that deliver measurable improvements in retail sales growth,
customer satisfaction levels, and shop flow capacity;
    
    Customized call center solutions customer contact centers, technical assistance call
centers, warranty pre-approval hotlines, customer helpdesk services and parts hotlines;
    
    Integrated document management solutions assists our customers in facilitating the
internal development and distribution of knowledge across their organizations. Our
services include document imaging and document support processing centers;
    
    Technical documentation and publishing cost effective development and content
management of engineering, manufacturing and accessories content with focus on exceeding
quality expectations.
  Human Capital Services
  
    
    Contingent staffing traditional temporary and/or permanent staffing for information
technology, engineering or other professional staff needs. Our staffing capabilities
include design and production engineers, computer operators, database specialists, network
administrators and specialists, PC support staff, software engineers, systems analysts and
administrators, and technical support specialists;
    
    Vendor management programs management of the entire contract staffing procurement
and deployment process on a regional, national or global basis utilizing web enabled
supporting technologies and custom processes;
    
    Specialized training training programs and virtual training courseware;
    
    Outsourced purchasing services management of the procurement process from initial
requisition to supplier payment.
  4




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Engineering Services
  
    
    Technical consultancy consultancy that supports complete engineering and niche
vehicle development and support programs and the application of processes and technology
tools to achieve best in class product quality, timing, and cost;
    
    Technology applications we apply technology and CAE tools to execute projects,
including virtual engineering (digital designing, predictive analysis, dimensional
management, CAD engineering, and manufacturing simulation). This reduces development
process cycle time and minimizes requirements for physical prototypes and testing;
    
    Engineering services we provide general engineering services required to deliver
successful products. These include studio services, product engineering (body structures,
chassis, and trim), system integration in powertrain and electronics, prototype vehicle
and system development and build, process and manufacturing engineering, and low volume
vehicle build.
  Disposition of Businesses
  Significant Customers and Supply Relationships
 (PIE CHART)     5




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Global Capabilities
  (PIE CHART) We believe our international presence is an advantage in winning and retaining new business,
particularly for our warranty solutions and dealership consultancy services. We currently provide
services in 18 countries through our facilities or on-site with customers. Foreign operations are
subject to political, monetary, economic, and other risks associated with international businesses.
Additional information about market risks is included under Item 7A. of this report. For the
fiscal year ended January 1, 2006, 31.1% of our net sales were generated outside of the U.S. after
adjusting for discontinued operations.  Employees
   Number ofRegion
    
    employeesNorth America
    
    
    2,650United Kingdom
    
    
    206Italy
    
    
    547Germany
    
    
    347Rest of Europe
    
    
    358Other
    
    
    583Total
    
    
    4,691
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Seasonality of our Business
  Environmental
  Patents and Trademarks
  Available Information
  
 Item 1A. Risk Factors.
  We are reliant on the automotive industry.
  We are reliant on our major customers.
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Our cost reduction efforts may be unsuccessful and we may incur unanticipated expenses that could
have an adverse effect on our results of operations and financial condition.
  Termination of customer relationships may cause us to have uncovered financial commitments.
  The revenues and stability of our customer contracts fluctuates, which may adversely affect our
operating results.
  Our substantial indebtedness could adversely affect our financial condition and prevent us from
fulfilling our obligations under our outstanding indebtedness and other obligations.
  
    
    Making it more difficult for us to satisfy our outstanding indebtedness and other
obligations;
    
    Impairing our ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes;
    
    Dedicating a substantial portion of our cash flow from operations to the payment of
principal and interest on our indebtedness, thereby reducing the funds available to us for
operations and expansion plans;
    
    Limiting our flexibility in planning for, or reacting to changes in business and the
industries in which we compete;
    
    Placing us at a possible competitive disadvantage with respect to less leveraged
competitors and competitors that have better access to capital resources; and
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
    
    making us more vulnerable to a downturn in general economic conditions or our business.
    Restrictive covenants in our senior credit facility, the indenture governing our outstanding senior
secured notes and our other current and future indebtedness could adversely restrict our operating
flexibility.
  Our ability to meet our long-term liquidity needs and obtain additional financing is uncertain.
  9




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Our holding company structure may impair our ability to make payments on our outstanding
indebtedness and other obligations.
  The existence of one or more material weaknesses in our internal controls over financial reporting
could result in errors in our financial statements, and substantial costs and resources may be
required to rectify any such internal control deficiencies.
    Our principal shareholder may exercise control over our operations.
  
    
    Select our entire Board of Directors;
    
    Control our management and policies; and
    
    Determine, without the consent of our other stockholders, the outcome of any corporate
transaction or other matter submitted to our stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets.
  The industries in which we operate are highly competitive.
  10




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Fluctuations in the general economy may adversely affect our operations.
  Our future success is substantially dependent on the availability of qualified personnel.
  We are substantially dependent upon our key personnel.
  We are subject to risks related to our international operations, which could have a material
adverse effect on those operations or our business as a whole.
  
    
    Exposure to local economic conditions;
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
    
    Exposure to local political conditions, including the risk of seizure of assets by
foreign government;
    
    Exposure to local social unrest, including any resultant acts of war, terrorism or
similar events and the resultant impact on economic and political conditions;
    
    Currency exchange rate fluctuations;
    
    Controls on the repatriation of cash, including imposition or increase of withholding
and other taxes on remittances and other payments by foreign subsidiaries;
    
    Changing, and in some cases, complex or ambiguous laws and regulations;
    
    Export and import restrictions; and
    
    Litigation claims and judgments.
   Our operating results may fluctuate from period to period.
  
    
    Seasonality, including number of workdays and holiday and summer vacations;
    
    The business decisions of our customers regarding the use of our services;
    
    Periodic differences between our customers estimated and actual levels of business
activity associated with ongoing engagements;
    
    The stage of completion of existing projects and/or their termination;
    
    Our ability to transition employees quickly from completed projects to new engagements;
    
    The introduction of new products or services by us or our competitors;
    
    Changes in our pricing policies or those of our competitors;
    
    Our ability to manage costs, including those for personnel, support services and
severance;
    
    Our ability to maintain an appropriate headcount in each of our workforces;
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
    
    Changes in, or the application of changes in, accounting principles or pronouncements
under U.S. generally accepted accounting principles, particularly those related to revenue
recognition;
    
    Currency exchange rate fluctuations;
    
    Changes in estimates, accruals or payments of variable compensation to our employees;
and
    
    Global, national, regional and local economic and political conditions and related
risks, including acts of terrorism.
 We may be liable for the actions of our employees and our customers.
  The temporary employment industry is heavily regulated.
   The cost of unemployment insurance premiums and workers compensation costs for our temporary
employees may rise and reduce our profits.
  We depend on the proper functioning of our information systems.
  13




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Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  Number ofRegion
    

FacilitiesNorth America
    
    
    18United Kingdom
    
    
    3Italy
    
    
    14Germany
    
    
    10Rest of Europe
    
    
    4Other
    
    
    4Total
    
    
    53
  
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  14




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PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters.
    15




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Item 6. Selected Financial Data.
  Fiscal Year EndedJanuary 1,
    
    
    January 2,
    
    
    December 28,
    
    
    December 29,
    
    
    December 30,2006
    
    
    2005
    
    
    2003
    
    
    2002
    
    
    2001(As Restated)
    
    
    (As Restated)(in thousands)Operations Data:Net Sales
    
    $
    434,966
    
    
    $
    454,305
    
    
    $
    503,903
    
    
    $
    569,503
    
    
    $
    695,324Cost of Sales
    
    
    368,356
    
    
    
    385,122
    
    
    
    429,633
    
    
    
    487,160
    
    
    
    591,468Gross profit
    
    
    66,610
    
    
    
    69,183
    
    
    
    74,270
    
    
    
    82,343
    
    
    
    103,856Selling, general and administrative expenses
    
    
    31,684
    
    
    
    35,350
    
    
    
    48,311
    
    
    
    60,820
    
    
    
    66,354Goodwill impairment charges
    
    
    89,828
    
    
    
    
    
    
    
    
    
    
    
    4,265
    
    
    
    5,623Restructuring and severance costs
    
    
    2,835
    
    
    
    209
    
    
    
    19,265
    
    
    
    3,967
    
    
    
    1,272Gain on extinguishment of debt
    
    
    (704
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    1,652
    
    
    
    4,356
    
    
    
    Income (loss) from continuing operations before
interest, income taxes, and equity in losses
affiliates
    
    
    (57,033
    )
    
    
    33,624
    
    
    
    5,042
    
    
    
    8,935
    
    
    
    30,607Interest expense, net
    
    
    33,875
    
    
    
    30,741
    
    
    
    28,518
    
    
    
    23,877
    
    
    
    25,297Income (loss) from continuing operatings before
income taxes, minority interests and equity
in affiliates, net of taxes
    
    
    (90,908
    )
    
    
    2,883
    
    
    
    (23,476
    )
    
    
    (14,942
    )
    
    
    5,310Income tax provision (benefit)
    
    
    707
    
    
    
    1,776
    
    
    
    17,304
    
    
    
    (3,553
    )
    
    
    1,929Less minority interests and equity in
affiliates, net of taxes
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    2,524
    
    
    
    1,537Income (loss) from continuing operations before
cumulative effect of accounting change
for goodwill impairment
    
    
    (91,615
    )
    
    
    1,107
    
    
    
    (40,740
    )
    
    
    (13,913
    )
    
    
    1,844Income (loss) from discontinued operations
    
    
    (22,795
    )
    
    
    550
    
    
    
    (26,038
    )
    
    
    (10,579
    )
    
    
    (1,341
    )Income (loss) before cumulative effect of
accounting change for goodwill impairment
    
    
    (114,410
    )
    
    
    1,657
    
    
    
    (66,778
    )
    
    
    (24,492
    )
    
    
    503Cumulative effect of accounting change for goodwill
impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,102
    )
    
    
    Net income (loss)
    
    $
    (114,410
    )
    
    $
    1,657
    
    
    $
    (66,778
    )
    
    $
    (62,594
    )
    
    $
    503Balance Sheet Data:Cash and cash equivalents
    
    $
    27,737
    
    
    $
    34,377
    
    
    $
    36,650
    
    
    $
    10,935
    
    
    $
    4,924Total assets
    
    
    214,436
    
    
    
    382,571
    
    
    
    436,083
    
    
    
    432,542
    
    
    
    514,382Total senior secured debt
    
    
    121,688
    
    
    
    130,864
    
    
    
    130,261
    
    
    
    104,674
    
    
    
    116,654Total debt
    
    
    251,688
    
    
    
    260,864
    
    
    
    260,261
    
    
    
    234,674
    
    
    
    246,654Redeemable preferred stock
    
    
    102,566
    
    
    
    91,312
    
    
    
    81,812
    
    
    
    72,629
    
    
    
    64,574Shareholders deficit
    
    
    (310,834
    )
    
    
    (183,462
    )
    
    
    (177,474
    )
    
    
    (108,817
    )
    
    
    (44,061
    )Other Data:EBITDA from continuing operations, as defined (A)
    
    $
    37,853
    
    
    $
    41,628
    
    
    $
    28,895
    
    
    $
    32,259
    
    
    $
    51,562Capital expenditures
    
    
    1,999
    
    
    
    972
    
    
    
    2,588
    
    
    
    9,003
    
    
    
    19,243
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(A)
    
    EBITDA is not a measure of operating results or cash flows from operations, as
determined in accordance with accounting principles generally accepted in the United
States. We have included EBITDA because we believe it is an indicative measure of
operating performance and is used by investors and analysts to evaluate companies with our
capital structure. As presented by us, EBITDA may not be comparable to similarly titled
measures reported by other companies. EBITDA should be considered in addition to, not as a
substitute for, operating income, income (loss) from continuing operations, cash flows, and
other measures of financial performance and liquidity reported in accordance with
accounting principles generally accepted in the United States.EBITDA for each period is presented as defined in our senior secured note indenture and is
calculated as income (loss) before the cumulative effect of accounting changes, plus (i)
income tax expense/(benefit), (ii) Michigan single business and similar taxes, (iii)
minority interests and equity in affiliates, (iv) net interest
expense, (v) gain on extinguishment of debt, (vi) loss on asset
impairment and sale, (vii) depreciation and amortization, and
(viii) goodwill impairment
charges. Gain on extinguishment of debt, losses on asset impairment and sale and goodwill impairment charges have been
added back for EBITDA purposes as these represent amounts that will not require cash
settlement at any future date. Michigan single business and similar taxes are treated like
other income based taxes for purposes of EBITDA calculations.The following table reconciles income (loss) from continuing operations before the
cumulative effect of an accounting change to EBITDA from continuing
operations, as defined: Fiscal Year EndedJanuary 1,
    
    
    January 2,
    
    
    December 28,
    
    
    December 29,
    
    
    December 30,2006
    
    
    2005
    
    
    2003
    
    
    2002
    
    
    2001(As Restated)
    
    
    (As Restated)(in thousands)Income (loss) from continuing operations before
cumulative effect of accounting change
    
    $
    (91,615
    )
    
    $
    1,107
    
    
    $
    (40,740
    )
    
    $
    (13,913
    )
    
    $
    1,844Income tax provision (benefit)
    
    
    707
    
    
    
    1,776
    
    
    
    17,304
    
    
    
    (3,553
    )
    
    
    1,929Michigan single business and similar taxes
    
    
    1,737
    
    
    
    1,988
    
    
    
    2,279
    
    
    
    2,701
    
    
    
    4,061Minority interests and equity in
affiliates, net of taxes
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    2,524
    
    
    
    1,537Interest expense, net
    
    
    33,875
    
    
    
    30,741
    
    
    
    28,518
    
    
    
    23,877
    
    
    
    25,297Gain on
extinguishment of debt
    
    
    (704
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    1,652
    
    
    
    4,356
    
    
    
    Depreciation
    
    
    4,025
    
    
    
    6,016
    
    
    
    19,922
    
    
    
    12,002
    
    
    
    11,271Goodwill impairment charges
    
    
    89,828
    
    
    
    
    
    
    
    
    
    
    
    4,265
    
    
    
    5,623EBITDA from continuing operations, as defined
    
    $
    37,853
    
    
    $
    41,628
    
    
    $
    28,895
    
    
    $
    32,259
    
    
    $
    51,562
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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Executive Overview
  
    
    Increase margins though emphasis on higher return service offerings We are committed
to developing and delivering higher value-added business solutions to address the complex
and evolving outsourcing needs of our customers. We believe this will both enhance
profitability and solidify our position as a one-stop outsource business service provider.
    
    Capitalize on growing trend toward outsourcing In many instances, our principal
competition is our customers in-house operations. These internal resources often have
other operational priorities, or they have become relatively costly or non-responsive to
organizational requirements. We believe our customers are implementing outsourcing
strategies in order to reduce costs, increase flexibility, and gain access to unique
expertise or technologies.
    
    Increase market share Based on our significant experience delivering complex technical
services to the automotive industry, we possess the credibility and technical expertise to
serve other industries with similar outsourcing requirements. Our goal is to expand and
diversify our client base by cross-selling our capabilities to existing customers and
providing our customers with an integrated portfolio of technical business services.
    18




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Restatements
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January 2, 2005
    
    
    December 28, 2003As Reported
    
    
    As Restated
    
    
    As Reported
    
    
    As Restated(in
thousands)Results
of Operations:Revenue
    
    $
    454,305
    
    
    $
    454,305
    
    
    $
    503,903
    
    
    $
    503,903Cost of Sales
    
    
    384,662
    
    
    
    385,122
    
    
    
    429,633
    
    
    
    429,633Gross Profit
    
    
    69,643
    
    
    
    69,183
    
    
    
    74,270
    
    
    
    74,270Selling, general & administrative expense
    
    
    35,350
    
    
    
    35,350
    
    
    
    48,311
    
    
    
    48,311Restructuring & severance costs
    
    
    209
    
    
    
    209
    
    
    
    19,265
    
    
    
    19,265Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    1,652
    
    
    
    1,652Income from continuing operations before
interest, income taxes and equity in net losses
of affiliates
    
    
    34,084
    
    
    
    33,624
    
    
    
    5,042
    
    
    
    5,042Interest expense, net
    
    
    30,741
    
    
    
    30,741
    
    
    
    28,518
    
    
    
    28,518Income (loss) from continuing operations
before income taxes, minority interests and
equity in affiliates
    
    
    3,343
    
    
    
    2,883
    
    
    
    (23,476
    )
    
    
    (23,476
    )Income tax provision
    
    
    1,776
    
    
    
    1,776
    
    
    
    17,304
    
    
    
    17,304Less minority interests and equity in affiliates, net
of taxes
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (40
    )Income (loss) from continuing operations
    
    
    1,567
    
    
    
    1,107
    
    
    
    (40,740
    )
    
    
    (40,740
    )Income (loss) from discontinued operations, net
    
    
    15
    
    
    
    550
    
    
    
    (23,273
    )
    
    
    (26,038
    )Net Income (loss)
    
    
    1,582
    
    
    
    1,657
    
    
    
    (64,013
    )
    
    
    (66,778
    )Accretion for redemption of preferred stock
    
    
    9,500
    
    
    
    9,500
    
    
    
    9,183
    
    
    
    9,183Net loss available to common shareholders
    
    $
    (7,918
    )
    
    $
    (7,843
    )
    
    $
    (73,196
    )
    
    $
    (75,961
    )
 January 2, 2005
    
    
    December 28, 2003As Reported
    
    
    As Restated
    
    
    As Reported
    
    
    As Restated(in
thousands)Cash Flows:Adjustments to reconcile net income (loss) to net cash
provided by operating activities:(Increase) decrease in receivables, net
    
    $
    48,439
    
    
    $
    48,414
    
    
    $
    (7,833
    )
    
    $
    (6,271
    )(Increase) decrease in inventory
    
    
    (3,543
    )
    
    
    (3,543
    )
    
    
    (3,792
    )
    
    
    (2,885
    )Increase (decrease) in current liabilities
    
    
    (47,627
    )
    
    
    (48,855
    )
    
    
    40,108
    
    
    
    39,983Other, net
    
    
    1,564
    
    
    
    2,434
    
    
    
    486
    
    
    
    486Net cash provided by operating activities
    
    
    15,819
    
    
    
    15,511
    
    
    
    14,535
    
    
    
    14,114Cash flows from investing activities:Capital expenditures
    
    
    (3,031
    )
    
    
    (2,723
    )
    
    
    (5,250
    )
    
    
    (4,829
    )
 As of January 2, 2005As Reported
    
    
    As Restated(in
thousands)Balance Sheet:Accounts receivable, net
    
    $
    158,640
    
    
    $
    157,103Inventory
    
    
    385,744
    
    
    
    11,253Property and equipment, net
    
    
    11,195
    
    
    
    10,466Accrued payroll and benefits
    
    
    22,442
    
    
    
    22,112Other accrued liabilities
    
    
    45,002
    
    
    
    43,979Long-term deferred compensation and other
    
    
    18,496
    
    
    
    19,366Total shareholders deficit
    
    
    (180,772
    )
    
    
    (183,462
    )
 20




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##### Table of Contents



Results of Operations
 Fiscal Year Ended January 1, 2006 Compared with the Fiscal Year Ended January 2, 2005
 Net Sales.
 Fiscal Year Ended
    
    
    Inc / (Dec) vs. 20042005
    
    
    2004
    
    
    $
    
    
    %(dollars in thousands)Business Outsourcing Services
    
    $
    169,155
    
    
    $
    177,964
    
    
    $
    (8,809
    )
    
    
    (4.9
    %)Human Capital Services
    
    
    177,136
    
    
    
    190,307
    
    
    
    (13,171
    )
    
    
    (6.9
    %)Engineering Services
    
    
    88,675
    
    
    
    86,034
    
    
    
    2,641
    
    
    
    3.1
    %Total net sales
    
    $
    434,966
    
    
    $
    454,305
    
    
    $
    (19,339
    )
    
    
    (4.3
    %)
    Operating Income
 Fiscal Year Ended2004
    
    Inc / (Dec) vs. 20042005
    
    (As Restated)
    
    $
    
    %(dollars in thousands)Gross profit
    
    $
    66,610
    
    
    $
    69,183
    
    
    $
    (2,573
    )
    
    
    (3.7
    %)% of net sales
    
    
    15.3
    %
    
    
    15.2
    %
    
    
    n/a
    
    
    
    n/aOperating income(1)
    
    $
    (57,033
    )
    
    $
    33,624
    
    
    $
    (90,657
    )
    
    
    (269.6
    %)% of net sales
    
    
    (13.1
    %)
    
    
    7.4
    %
    
    
    n/a
    
    
    
    n/a
 
 (1)Includes non-cash charge for goodwill impairment totaling $89.8
million. 21




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##### Table of Contents



Interest Expense.
 Income Taxes
 Fiscal Year EndedJanuary 1,
    
    
    January 2,2006
    
    
    2005(in thousands)Tax (benefit) at 35% U.S. statutory rate
    
    $
    (31,818
    )
    
    $
    1,009Goodwill
    
    
    11,437
    
    
    
    Valuation allowance
    
    
    22,823
    
    
    
    4,371Effect of foreign tax rates
    
    
    (1,034
    )
    
    
    (1,396
    )State and local taxes
    
    
    401
    
    
    
    (176
    )Other, net
    
    
    (1,102
    )
    
    
    (2,032
    )$
    707
    
    
    $
    1,776
  22




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##### Table of Contents



Fiscal Year Ended January 2, 2005 Compared with the Fiscal Year Ended December 28, 2003
 Net Sales.
 Fiscal Year Ended2004
    
    
    2003
    
    
    Inc / (Dec) vs. 2003(As Restated)
    
    
    (As Restated)
    
    
    $
    
    
    %(dollars in thousands)Business Outsourcing Services
    
    $
    177,964
    
    
    $
    173,814
    
    
    $
    4,150
    
    
    
    2.4
    %Human Capital Services
    
    
    190,307
    
    
    
    231,907
    
    
    
    (41,600
    )
    
    
    (17.9
    %)Engineering Services
    
    
    86,034
    
    
    
    98,182
    
    
    
    (12,148
    )
    
    
    (12.4
    %)Total net sales
    
    $
    454,305
    
    
    $
    503,903
    
    
    $
    (49,598
    )
    
    
    (9.8
    %)
    Operating Income.
 Fiscal Year Ended2004
    
    2003
    
    Inc / (Dec) vs. 2003(As Restated)
    
    (As Restated)
    
    $
    
    %(dollars in thousands)Gross profit
    
    $
    69,183
    
    
    $
    74,270
    
    
    $
    (5,087
    )
    
    
    (6.8
    %)% of net sales
    
    
    15.2
    %
    
    
    14.7
    %
    
    
    n/a
    
    
    
    n/aOperating income
    
    $
    33,624
    
    
    $
    5,042
    
    
    $
    28,582
    
    
    
    566.9
    %% of net sales
    
    
    7.4
    %
    
    
    1.0
    %
    
    
    n/a
    
    
    
    n/a
  23




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##### Table of Contents



Interest Expense.
 Income Taxes.
 Fiscal Year EndedJanuary 2, 2005
    
    
    December 28, 2003(in thousands)Tax at 35% U.S. statutory rate
    
    $
    1,009
    
    
    $
    (8,217
    )Valuation allowance
    
    
    4,371
    
    
    
    26,025Effect of foreign tax rates
    
    
    (1,396
    )
    
    
    (850
    )State and local taxes
    
    
    (176
    )
    
    
    (29
    )Other, net
    
    
    (2,032
    )
    
    
    375$
    1,776
    
    
    $
    17,304
  Restructuring Initiatives
   24




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##### Table of Contents



Fiscal Year EndedJanuary 1,
    
    
    January 2,
    
    
    December 28,2006
    
    
    2005
    
    
    2003(in thousands)Employee termination and related costs
    
    $
    2,835
    
    
    $
    209
    
    
    $
    6,123Facility consolidation costs
    
    
    
    
    
    
    
    
    
    
    4,837Other contractual costs
    
    
    
    
    
    
    
    
    
    
    2,096Asset impairments
    
    
    
    
    
    
    
    
    
    
    6,037Other
    
    
    
    
    
    
    
    
    
    
    172Total restructuring charges
    
    $
    2,835
    
    
    $
    209
    
    
    $
    19,265
 Employee termination and related costs
  Facility consolidation costs
  Other contractual costs
  Asset impairments
  Discontinued Operations
  25




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##### Table of Contents



Assets Held for SaleAt January 1, 2006     MSX International Engineering GmbH, our remaining
engineering operations in Germany     Satiz S.r.l., our Italian technical and commercial publishing
business     Creative Technology Services, LLC. (sold January 2006)At January 2, 2005     Substantially all of our European engineering and
staffing businesses (portions of which were sold during 2005)
  January 1,
    
    
    January 2,
    
    
    December 28,2006
    
    
    2005
    
    
    2003(As Restated)
    
    
    (As Restated)Net sales
    
    $
    108,797
    
    
    $
    175,794
    
    
    $
    201,489Cost of sales
    
    
    99,358
    
    
    
    164,876
    
    
    
    200,503Gross profit
    
    
    9,439
    
    
    
    10,918
    
    
    
    986Selling, general and administrative expense
    
    
    5,720
    
    
    
    8,216
    
    
    
    11,012Restructuring and severance
    
    
    6,763
    
    
    
    1,453
    
    
    
    12,223Goodwill impairment charge
    
    
    16,868
    
    
    
    
    
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    241Operating income (loss)
    
    
    (19,912
    )
    
    
    1,249
    
    
    
    (22,490
    )Interest expense (benefit), net
    
    
    (156
    )
    
    
    913
    
    
    
    1,291Net loss on sale of businesses
    
    
    4,000
    
    
    
    
    
    
    
    Income (loss) before taxes, net
    
    
    (23,756
    )
    
    
    336
    
    
    
    (23,781
    )Income tax provision (benefit)
    
    
    (961
    )
    
    
    (214
    )
    
    
    2,436Minority interest and equity in affiliates
    
    
    
    
    
    
    
    
    
    
    (179
    )Income (loss) from discontinued operations
    
    $
    (22,795
    )
    
    $
    550
    
    
    $
    (26,038
    )
   26




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##### Table of Contents



 
   Liquidity and Capital Resources
 Cash Flows.
 General
  (BAR GRAPH)  Operating Activities
 27




---



##### Table of Contents



(BAR GRAPH)  Investing Activities.
  Financing Activities.
 (BAR GRAPH)   28




---



##### Table of Contents



Debt Arrangements
 Senior Secured Notes and Mezzanine Term Notes.
 Senior Subordinated Notes.
 Credit Facility and Fourth Lien Term Notes.
  Satiz Facility.
  Liquidity and Available Financing
   29




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##### Table of Contents




    
    Extend the maturity date of the credit facility from August 1, 2006 to January 15,
2007;
    
    Reduce the aggregate commitments under the credit facility from $45 million to $25
million subject to limitations based on domestic accounts receivable and cash
collateral held in blocked accounts in connection with prepayments of obligations under
the credit facility;
    
    Allow for future permanent reductions of commitment and related borrowings via use
of funds from any asset sales held in blocked accounts by the bank; and
    
    Modify certain covenants and restrictions on the Companys ability to borrow under
the credit facility, including the elimination of all commitments related to
non-domestic subsidiaries of the Company.
   Contractual Obligations and Off-Balance Sheet Arrangements
  Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years(in thousands)Total debt
    
    $
    252,772
    
    
    $
    1,084
    
    
    $
    251,688
    
    
    $
    
    
    
    $
    Operating leases
    
    
    21,880
    
    
    
    9,313
    
    
    
    7,705
    
    
    
    3,476
    
    
    
    1,386Earnout/settlement obligation
    
    
    4,834
    
    
    
    2,417
    
    
    
    2,417
    
    
    
    
    
    
    
    Multi-employer pension plan obligations
    
    
    1,143
    
    
    
    199
    
    
    
    596
    
    
    
    348
    
    
    
    Total
    
    $
    280,629
    
    
    $
    13,013
    
    
    $
    262,406
    
    
    $
    3,824
    
    
    $
    1,386
  30




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##### Table of Contents



Critical Accounting Policies
  
    
    Valuation of accounts receivable Periodically, we review accounts receivable to
reassess our estimates of collectibility. We provide valuation reserves for bad debts
based on specific identification of likely and probable losses. In addition, we provide
valuation reserves for estimates of aged receivables that may be written off, based upon
historical experience. These valuation reserves are periodically re-evaluated and adjusted
as more information about the ultimate collectibility of accounts receivable becomes
available. Circumstances that could cause our valuation reserves to increase include
changes in our customers liquidity and credit quality, other factors negatively impacting
our customers ability to pay their obligations as they come due and the quality of our
collection efforts.
    
    Valuation of goodwill and long-lived assets During the fourth quarter of each fiscal
year we review the carrying value of our goodwill and long-lived assets for impairment
based on projections of anticipated discounted cash flows. Determining market values based
on discounted cash flows requires management to make significant estimates and assumptions
including, but not limited to, long-term projections of cash flows, investment
requirements, market conditions, and appropriate discount rates. Management judgments are
based on historical experience, information from our customers, market and regional trends,
and other information including, in the case of discount rates, cost of capital data
compiled by third parties. While we believe that the estimates and assumptions underlying
our valuation models are valid, different assumptions could result in a larger or smaller
charge to earnings. In completing our analysis in 2005 we used a discount rate of 12.23%,
which represents the median WACC for the staffing industry per Ibbotson Associates, in our
cash flows calculations. A 1% change in the discount rate results in a $13.0 million
change in the calculated fair value assuming all other assumptions are unchanged.In addition to our annual impairment analysis, we evaluate the carrying value of specific
assets and liabilities when facts and circumstances warrant such a review. During fiscal
2005, results from continuing operations include a goodwill impairment charge totaling $89.8
million related to selected staffing businesses. Results of discontinued operations include
goodwill impairment charges totaling $16.8 million related to Satiz. Both charges represent
the estimated excess of book value over the fair value of such businesses. Fair value for
these businesses was determined based on contemplated sale values for each business.
    
    Deferred income taxes At January 1, 2006 our consolidated balance sheet includes net
deferred tax assets of $6.6 million. As of January 1, 2006, valuation allowances totaling
$36.2 million have been established against a substantial portion of our deferred tax
assets. Valuation allowances were required due to cumulative operating losses generated by
certain operations. In accordance with SFAS No. 109, when negative evidence such as
cumulative losses exists management must place considerable weight on historical results
and less weight on future projections when evaluating the realizability of deferred tax
assets. As a result, management determined that the likelihood of realizing certain
deferred tax assets was not sufficient to allow for continued recognition of assets.
    
    Valuation of common stock purchase warrants In connection with the issuance of
mezzanine term notes during 2003, we granted to Citicorp Mezzanine III, L.P. the right to
purchase 16,666 shares of our Class A common stock.
The purchase warrants are exercisable at a price of $0.01 per share, subject to certain
anti-dilution adjustments, through July 31, 2013. To determine the fair value of the
warrants we completed a discounted cash flow analysis, which requires management to make
significant estimates and assumptions including, but not limited to, long-term
 31




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##### Table of Contents



projections
of cash flows, market conditions, and appropriate discount rates. During the third quarter
of 2003, we recorded common stock purchase warrants at a fair value of $750,000. While we
believe that the estimates and assumptions underlying our valuation models are valid,
different assumptions could result in a different fair market value assigned to the
warrants.
 Inflation
  Seasonality
  Recently Issued Accounting Pronouncements
 SFAS No. 123-R, Accounting for Stock-Based Compensation  Revised:
 32




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##### Table of Contents



Forward Looking Statements
  
    
    Our substantial leverage and related exposure to changes in interest rates;
    
    Our reliance on the automotive industry and major customers in such industry,
including without limitation the timing of such customers product development and
other initiatives;
    
    The market demand for our business services in general;
    
    Our ability to attract, retain, develop and place qualified personnel, particularly technical personnel;
    
    Delays or unexpected costs associated with our cost reduction efforts;
    
    Risks associated with operating internationally, including economic, political and currency risks; and
    
    Risks associated with material weaknesses we have identified in our internal
controls over financial reporting and the potential adverse affect of those weaknesses
on our business if such weaknesses are not adequately addressed.
   
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  Currency Rate Management
  33




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##### Table of Contents



Interest Rate Management
  Sales to Major Markets/Customers
  34




---



##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data.
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 35




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
    /s/ PRICEWATERHOUSECOOPERS LLP
 
 36




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##### Table of Contents



MSX INTERNATIONAL, INC.
 CONSOLIDATED BALANCE SHEETS  as of January 1, 2006 and January 2, 2005
 January 2,January 1,
    
    
    20052006
    
    
    (As Restated)(in thousands, except share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,737
    
    
    $
    34,377Accounts receivable, net (Note 7)
    
    
    96,684
    
    
    
    157,103Inventory
    
    
    785
    
    
    
    11,253Prepaid expenses and other assets
    
    
    3,708
    
    
    
    3,402Assets held for sale (Note 4)
    
    
    36,229
    
    
    
    13,453Deferred income taxes, net (Note 16)
    
    
    5,634
    
    
    
    5,341Total current assets
    
    
    170,777
    
    
    
    224,929Property and equipment, net (Note 8)
    
    
    3,757
    
    
    
    10,466Goodwill, net (Note 9)
    
    
    26,504
    
    
    
    135,095Assets held for sale (Note 4)
    
    
    5,588
    
    
    
    2,618Other assets
    
    
    6,810
    
    
    
    9,463Deferred income taxes, net (Note 16)
    
    
    1,000
    
    
    
    Total assets
    
    $
    214,436
    
    
    $
    382,571LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Notes payable and current portion of long-term debt (Note 11)
    
    $
    
    
    
    $
    10,995Accounts payable and drafts (Note 12)
    
    
    63,467
    
    
    
    117,251Accrued payroll and benefits
    
    
    19,906
    
    
    
    22,112Liabilities held for sale (Note 4)
    
    
    31,332
    
    
    
    10,133Other accrued liabilities (Note 10)
    
    
    41,771
    
    
    
    43,979Total current liabilities
    
    
    156,476
    
    
    
    204,470Long-term debt (Note 11)
    
    
    251,688
    
    
    
    249,869Long-term deferred compensation liabilities and other (Note 15)
    
    
    5,402
    
    
    
    19,366Liabilities held for sale (Note 4)
    
    
    9,138
    
    
    
    Deferred income taxes, net (Note 16)
    
    
    
    
    
    
    1,016Total liabilities
    
    
    422,704
    
    
    
    474,721Commitments and contingencies (Note 13)
    
    
    
    
    
    
    Redeemable Series A Preferred Stock (Note 14)
    
    
    102,566
    
    
    
    91,312Shareholders deficitCommon Stock, $.01 par value, 5,000,000 aggregate shares of each of
Class A and Class B Common Stock
authorized; 486,354 shares of
Class A Common Stock issued and outstanding
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    (24,881
    )
    
    
    (24,881
    )Common stock purchase warrants
    
    
    750
    
    
    
    750Accumulated other comprehensive loss
    
    
    (2,602
    )
    
    
    (894
    )Retained deficit
    
    
    (284,106
    )
    
    
    (158,442
    )Total shareholders deficit
    
    
    (310,834
    )
    
    
    (183,462
    )Total liabilities and shareholders deficit
    
    $
    214,436
    
    
    $
    382,571
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
 37




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##### Table of Contents



MSX INTERNATIONAL, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS  for the three fiscal years ended January 1, 2006
 Fiscal Year
    
    
    Fiscal YearFiscal Year
    
    
    Ended
    
    
    EndedEnded
    
    
    January 2,
    
    
    December 28,January 1,
    
    
    2005
    
    
    20032006
    
    
    (As Restated)
    
    
    (As Restated)(in thousands)Net sales
    
    $
    434,966
    
    
    $
    454,305
    
    
    $
    503,903Cost of sales
    
    
    368,356
    
    
    
    385,122
    
    
    
    429,633Gross profit
    
    
    66,610
    
    
    
    69,183
    
    
    
    74,270Selling, general and administrative expenses
    
    
    31,684
    
    
    
    35,350
    
    
    
    48,311Goodwill impairment charges
    
    
    89,828
    
    
    
    
    
    
    
    Restructuring and severance costs
    
    
    2,835
    
    
    
    209
    
    
    
    19,265Gain on extinguishment of debt (Note 6)
    
    
    (704
    )
   
    
    
    
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    1,652Income (loss) from continuing operations before
interest, income taxes, minority
interests and
equity in affiliates
    
    
    (57,033
    )
    
    
    33,624
    
    
    
    5,042Interest expense, net
    
    
    33,875
    
    
    
    30,741
    
    
    
    28,518Income (loss) from continuing operations before
income taxes, minority interests and
equity in affiliates
    
    
    (90,908
    )
    
    
    2,883
    
    
    
    (23,476
    )Income tax provision
    
    
    707
    
    
    
    1,776
    
    
    
    17,304Less minority interests and equity in affiliates
    
    
    
    
    
    
    
    
    
    
    (40
    )Income (loss) from continuing operations
    
    
    (91,615
    )
    
    
    1,107
    
    
    
    (40,740
    )Income (loss) from discontinued operations, net
of taxes (Note 4)
    
    
    (22,795
    )
    
    
    550
    
    
    
    (26,038
    )Net income (loss)
    
    
    (114,410
    )
    
    
    1,657
    
    
    
    (66,778
    )Accretion for redemption of preferred stock (Note 14)
    
    
    (11,254
    )
    
    
    (9,500
    )
    
    
    (9,183
    )Net loss available to common shareholders
    
    $
    (125,664
    )
    
    $
    (7,843
    )
    
    $
    (75,961
    )
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
 38




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##### Table of Contents



MSX INTERNATIONAL, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS  for the three fiscal years ended January 1, 2006
 Fiscal Year
    
    
    Fiscal YearFiscal Year
    
    
    Ended
    
    
    EndedEnded
    
    
    January 2,
    
    
    December 28,January 1,
    
    
    2005
    
    
    20032006
    
    
    (As Restated)
    
    
    (As Restated)(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (114,410
    )
    
    $
    1,657
    
    
    $
    (66,778
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Loss on asset impairment and sale
    
    
    4,000
    
    
    
    
    
    
    
    1,893Minority interests and equity in affiliates
    
    
    
    
    
    
    
    
    
    
    (219
    )Gain on extinguishment of debt
    
    
    (704
    )
    
    
    
    
    
    
    Depreciation
    
    
    4,946
    
    
    
    8,543
    
    
    
    25,523Goodwill impairment charges
    
    
    106,695
    
    
    
    
    
    
    
    Amortization of debt issuance costs
    
    
    4,628
    
    
    
    4,345
    
    
    
    6,574Deferred income taxes (benefits)
    
    
    (2,579
    )
    
    
    953
    
    
    
    14,099Loss on sale/disposal of property and equipment
    
    
    189
    
    
    
    61
    
    
    
    701(Increase) decrease in receivables, net
    
    
    35,647
    
    
    
    48,414
    
    
    
    (6,271
    )(Increase) decrease in inventory
    
    
    3,811
    
    
    
    (3,543
    )
    
    
    (2,885
    )(Increase) decrease in prepaid expenses and other assets
    
    
    (338
    )
    
    
    1,502
    
    
    
    1,008Increase (decrease) in current liabilities
    
    
    (30,242
    )
    
    
    (48,855
    )
    
    
    39,983Long-term deferred compensation liabilities and other,
net
    
    
    (3,908
    )
    
    
    2,434
    
    
    
    486Net cash provided by operating activities
    
    
    7,735
    
    
    
    15,511
    
    
    
    14,114Cash flows from investing activities:Capital expenditures
    
    
    (5,048
    )
    
    
    (2,723
    )
    
    
    (4,829
    )Payments for contingent consideration and minority interests
    
    
    (2,417
    )
    
    
    (4,354
    )
    
    
    Proceeds from sale/disposal of businesses, net of expenses paid
    
    
    5,088
    
    
    
    
    
    
    
    Proceeds from sale/disposal of equipment and investments
    
    
    227
    
    
    
    324
    
    
    
    2,152Other, net
    
    
    
    
    
    
    2,269
    
    
    
    (229
    )Net cash used for investing activities
    
    
    (2,150
    )
    
    
    (4,484
    )
    
    
    (2,906
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    
    
    
    
    
    
    
    
    99,854Repayment of debt
    
    
    (1,901
    )
    
    
    
    
    
    
    (65,808
    )Debt issuance costs
    
    
    (32
    )
    
    
    (419
    )
    
    
    (6,426
    )Changes in revolving debt, net
    
    
    (7,885
    )
    
    
    (1,621
    )
    
    
    (9,910
    )Changes in book overdrafts, net
    
    
    (2,462
    )
    
    
    (10,721
    )
    
    
    (4,530
    )Net cash provided by (used for) financing activities
    
    
    (12,280
    )
    
    
    (12,761
    )
    
    
    13,180Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    328
    
    
    
    (539
    )
    
    
    1,327Cash and cash equivalents:Increase (decrease) for the period
    
    
    (6,367
    )
    
    
    (2,273
    )
    
    
    25,715Balance, beginning of period
    
    
    34,377
    
    
    
    36,650
    
    
    
    10,935Balance, end of period (including $273 of cash held for sale)
    
    $
    28,010
    
    
    $
    34,377
    
    
    $
    36,650Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    26,884
    
    
    $
    26,735
    
    
    $
    20,099Cash paid (refunds received) for income taxes, net
    
    
    2,952
    
    
    
    1,181
    
    
    
    (206
    )
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
 39




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##### Table of Contents



MSX INTERNATIONAL, INC.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS DEFICIT  for the three fiscal years ended January 1, 2006
 Common
    
    
    
    
    
    
    Accumulated
    
    
    RetainedStock
    
    
    Note
    
    
    Other
    
    
    Earnings
    
    
    TotalCommon
    
    
    Additional
    
    
    Purchase
    
    
    Receivable
    
    
    Comprehensive
    
    
    (Accumulated
    
    
    ShareholdersStock
    
    
    Paid-In-Capital
    
    
    Warrants
    
    
    From Officer
    
    
    Loss
    
    
    Deficit)
    
    
    Deficit(in thousands, except share amounts)Balance at December 29, 2002
    
    $
    201
    
    
    $
    (21,879
    )
    
    $
    
    
    
    $
    (3,198
    )
    
    $
    (9,303
    )
    
    $
    (74,638
    )
    
    $
    (108,817
    )Comprehensive income:Net loss  as reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64,013
    )
    
    
    (64,013
    )Adjustments due to restatement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,765
    )
    
    
    (2,765
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,554
    
    
    
    
    
    
    
    6,554Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (60,224
    )Accretion for redemption of
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,183
    )
    
    
    (9,183
    )Issuance of common stock purchase
warrants
    
    
    
    
    
    
    
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750Redemption of note receivable
    
    
    (6
    )
    
    
    (3,192
    )
    
    
    
    
    
    
    3,198
    
    
    
    
    
    
    
    
    
    
    
    Reverse stock split
    
    
    (190
    )
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 28, 2003 (As Restated)
    
    
    5
    
    
    
    (24,881
    )
    
    
    750
    
    
    
    
    
    
    
    (2,749
    )
    
    
    (150,599
    )
    
    
    (177,474
    )Comprehensive income:Net income  as reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,582
    
    
    
    1,582Adjustments due to restatement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    75Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,855
    
    
    
    
    
    
    
    1,855Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,512Accretion for redemption of
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,500
    )
    
    
    (9,500
    )Balance at January 2, 2005 (As Restated)
    
    
    5
    
    
    
    (24,881
    )
    
    
    750
    
    
    
    
    
    
    
    (894
    )
    
    
    (158,442
    )
    
    
    (183,462
    )Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (114,410
    )
    
    
    (114,410
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,708
    )
    
    
    
    
    
    
    (1,708
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116,118
    )Accretion for redemption of
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,254
    )
    
    
    (11,254
    )Balance at January 1, 2006
    
    $
    5
    
    
    $
    (24,881
    )
    
    $
    750
    
    
    $
    
    
    
    $
    (2,602
    )
    
    $
    (284,106
    )
    
    $
    (310,834
    )
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
 40




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands unless otherwise stated)
 1. Organization and Basis of Presentation:
   2. Significant Accounting Policies:
 a. Principles of Consolidation.
 b. Cash and Cash Equivalents.
 c. Receivables.
 d. Inventory.
 e. Property and Equipment.
  41




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
 f. Depreciation.
 Useful LivesIn YearsBuildings and leasehold improvements
    
    
    5-39Machinery and equipment
    
    
    3-12Computers, peripherals and software
    
    
    2-5Automobiles and trucks
    
    
    3-5
  g. Goodwill.
 h. Fair Value of Financial Instruments
 i. Stock-Based Compensation.
 Fiscal Year EndedJanuary 2,
    
    
    December 28,January
1,2006
    
    
    2005(As
Restated)
    
    
    2003(As
Restated)Net income (loss) as reported
    
    $
    (114,410
    )
    
    $
    1,657
    
    
    $
    (66,778
    )Deduct: Total employee stock-based compensation
determined under the fair value method, net of taxes
    
    
    
    
    
    
    
    
    
    
    (37
    )Pro forma net income (loss)
    
    $
    (114,410
    )
    
    $
    1,657
    
    
    $
    (66,815
    )
 j. Foreign Currency Translation and Transactions.
 k. Revenue Recognition.
 42




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  l. Income Taxes.
 m. Foreign Currency Contracts.
 n. Reclassifications.
 o. Use of Estimates.
 p. Investments.
 q. Recently Issued Accounting Pronouncements. Accounting for Stock-Based
Compensation-Revised
 3. Restatements
  43




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
    44




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  January 2, 2005
    
    
    December 28, 2003As Reported
    
    
    As Restated
    
    
    As Reported
    
    
    As RestatedResults of Operations:Revenue
    
    $
    454,305
    
    
    $
    454,305
    
    
    $
    503,903
    
    
    $
    503,903Cost of Sales
    
    
    384,662
    
    
    
    385,122
    
    
    
    429,633
    
    
    
    429,633Gross Profit
    
    
    69,643
    
    
    
    69,183
    
    
    
    74,270
    
    
    
    74,270Selling, general & administrative expense
    
    
    35,350
    
    
    
    35,350
    
    
    
    48,311
    
    
    
    48,311Restructuring & severance costs
    
    
    209
    
    
    
    209
    
    
    
    19,265
    
    
    
    19,265Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    1,652
    
    
    
    1,652Income from continuing operations before
interest, income taxes and equity in net losses
of affiliates
    
    
    34,084
    
    
    
    33,624
    
    
    
    5,042
    
    
    
    5,042Interest expense, net
    
    
    30,741
    
    
    
    30,741
    
    
    
    28,518
    
    
    
    28,518Income (loss) from continuing operations
before income taxes, minority interests and
equity in affiliates
    
    
    3,343
    
    
    
    2,883
    
    
    
    (23,476
    )
    
    
    (23,476
    )Income tax provision
    
    
    1,776
    
    
    
    1,776
    
    
    
    17,304
    
    
    
    17,304Less minority interests and equity in affiliates, net
of taxes
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    (40
    )Income (loss) from continuing operations
    
    
    1,567
    
    
    
    1,107
    
    
    
    (40,740
    )
    
    
    (40,740
    )Income (loss) from discontinued operations, net
    
    
    15
    
    
    
    550
    
    
    
    (23,273
    )
    
    
    (26,038
    )Net Income (loss)
    
    
    1,582
    
    
    
    1,657
    
    
    
    (64,013
    )
    
    
    (66,778
    )Accretion for redemption of preferred stock
    
    
    9,500
    
    
    
    9,500
    
    
    
    9,183
    
    
    
    9,183Net loss available to common shareholders
    
    $
    (7,918
    )
    
    $
    (7,843
    )
    
    $
    (73,196
    )
    
    $
    (75,961
    )
 January 2, 2005
    
    December 28, 2003As Reported
    
    As Restated
    
    As Reported
    
    As RestatedCash Flows:Adjustments to reconcile net income (loss) to net cash
provided by operating activities:(Increase) decrease in receivables, net
    
    $
    48,439
    
    
    $
    48,414
    
    
    $
    (7,833
    )
    
    $
    (6,271
    )(Increase) decrease in inventory
    
    
    (3,543
    )
    
    
    (3,543
    )
    
    
    (3,792
    )
    
    
    (2,885
    )Increase (decrease) in current liabilities
    
    
    (47,627
    )
    
    
    (48,855
    )
    
    
    40,108
    
    
    
    39,983Other, net
    
    
    1,564
    
    
    
    2,434
    
    
    
    486
    
    
    
    486Net cash provided by operating activities
    
    
    15,819
    
    
    
    15,511
    
    
    
    14,535
    
    
    
    14,114Cash flows from investing activities:Capital expenditures
    
    
    (3,031
    )
    
    
    (2,723
    )
    
    
    (5,250
    )
    
    
    (4,829
    )
 As of January 2, 2005As Reported
    
    As RestatedBalance Sheet:Accounts receivable, net
    
    $
    158,640
    
    
    $
    157,103Inventory
    
    
    385,744
    
    
    
    11,253Property and equipment, net
    
    
    11,195
    
    
    
    10,466Accrued payroll and benefits
    
    
    22,442
    
    
    
    22,112Other accrued liabilities
    
    
    45,002
    
    
    
    43,979Long-term deferred compensation and other
    
    
    18,496
    
    
    
    19,366Total shareholders deficit
    
    
    (180,772
    )
    
    
    (183,462
    )
  45




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
 4. Discontinued Operations and Sales of Businesses:
    
 At January 1, 2006
 
    
    MSX International Engineering GmbH, our remaining
engineering operations in Germany
    
    Satiz S.r.l., our Italian technical and commercial publishing
business
    
    Creative Technology Services, LLC. (sold January 2006)
 At January 2, 2005
 
    
    Substantially all of our European engineering and
staffing businesses (portions of which were sold during
2005)
 46




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
   At January 1,
    
    
    At January 2,2006
    
    
    2005Assets:Cash and cash equivalents
    
    $
    273
    
    
    $
    Accounts receivable, net
    
    
    27,188
    
    
    
    12,140Inventory
    
    
    6,657
    
    
    
    Prepaid expenses
    
    
    373
    
    
    
    1,313Deferred tax assets
    
    
    1,738
    
    
    
    Total current assets held for sale
    
    
    36,229
    
    
    
    13,453Property and equipment, net
    
    
    4,765
    
    
    
    2,259Goodwill, net
    
    
    372
    
    
    
    359Other assets
    
    
    313
    
    
    
    Deferred tax assets
    
    
    138
    
    
    
    Total assets held for sale
    
    
    41,817
    
    
    
    16,071Liabilities:Note payable and current portion of
long-term debt
    
    
    1,084
    
    
    
    Accounts payable and drafts
    
    
    22,535
    
    
    
    2,880Accrued payroll and benefits
    
    
    5,755
    
    
    
    4,642Other accrued liabilities
    
    
    1,958
    
    
    
    2,611Total current liabilities held for sale
    
    
    31,332
    
    
    
    10,133Long-term deferred compensation
liabilities and other
    
    
    7,532
    
    
    
    Deferred tax liabilities
    
    
    1,606
    
    
    
    Total liabilities held for sale
    
    
    40,470
    
    
    
    10,133Net assets held for sale
    
    $
    1,347
    
    
    $
    5,938
 47




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  January 2,
    
    
    December 28,January 1,
    
    
    2005
    
    
    20032006
    
    
    (As Restated)
    
    
    (As Restated)Net sales
    
    $
    108,797
    
    
    $
    175,794
    
    
    $
    201,489Cost of sales
    
    
    99,358
    
    
    
    164,876
    
    
    
    200,503Gross profit
    
    
    9,439
    
    
    
    10,918
    
    
    
    986Selling, general and administrative expense
    
    
    5,720
    
    
    
    8,216
    
    
    
    11,012Restructuring and severance
    
    
    6,763
    
    
    
    1,453
    
    
    
    12,223Goodwill impairment charge
    
    
    16,868
    
    
    
    
    
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    241Operating income (loss)
    
    
    (19,912
    )
    
    
    1,249
    
    
    
    (22,490
    )Interest expense (benefit), net
    
    
    (156
    )
    
    
    913
    
    
    
    1,291Net loss on sale of businesses
    
    
    4,000
    
    
    
    
    
    
    
    Income (loss) before taxes, net
    
    
    (23,756
    )
    
    
    336
    
    
    
    (23,781
    )Income tax provision (benefit)
    
    
    (961
    )
    
    
    (214
    )
    
    
    2,436Minority interest and equity in affiliates
    
    
    
    
    
    
    
    
    
    
    (179
    )Income (loss) from discontinued operations
    
    $
    (22,795
    )
    
    $
    550
    
    
    $
    (26,038
    )
    
  48




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MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
   Gross sale price
    
    $
    7,529Less:Net assets sold
    
    
    7,856Reserves and expenses
    
    
    3,673Loss on sale, net
    
    $
    4,000
  Assets:Cash and cash equivalents
    
    $
    181Accounts receivable, net
    
    
    10,470Prepaid expenses
    
    
    975Total current assets held for sale
    
    
    11,626Property and equipment, net
    
    
    1,936Total assets sold
    
    
    13,562Liabilities:Accounts payable and drafts
    
    
    1,074Accrued payroll and benefits
    
    
    1,918Other accrued liabilities
    
    
    2,714Total liabilities sold
    
    
    5,706Net assets sold
    
    $
    7,856
  5. Restructuring and Severance
  
    
    On August 1, 2003 we completed a private offering of senior secured notes totaling $100.5
million that mature October 15, 2007. Net proceeds of $95.5 million were used to payoff our
existing senior credit facility, including $62.7 million of term debt. The transaction served to extend into future years debt
repayment obligations under the existing facility, which was scheduled to expire December 7,
2004. Concurrently with the notes offering, we amended our senior credit facility to
include a $40 million revolving facility and an additional $5 million exclusively for the
issuance of letters of credit. For additional information see Note 18 Subsequent Events.
 49




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
 
    
    Management implemented a comprehensive cost reduction plan in late 2003 to optimize the Companys cost structure
and align resources with the Companys growth strategy. Subsequent actions were taken in response to continued
changes in our business. The incremental costs of these programs are reported during each year as restructuring
charges. All initiatives to date have been initiated or completed at the end of fiscal 2005. Restructuring
charges incurred during the periods presented were accounted for in accordance with SFAS No. 146.The table below details the restructuring charges related to continuing operations for the last three fiscal years:
 Fiscal Year EndedJanuary 1,
    
    
    January 2,
    
    
    December 28,2006
    
    
    2005
    
    
    2003(in thousands)Employee termination and related costs
    
    $
    2,835
    
    
    $
    209
    
    
    $
    6,123Facility consolidation costs
    
    
    
    
    
    
    
    
    
    
    4,837Other contractual costs
    
    
    
    
    
    
    
    
    
    
    2,096Asset impairments
    
    
    
    
    
    
    
    
    
    
    6,037Other
    
    
    
    
    
    
    
    
    
    
    172Total restructuring charges
    
    $
    2,835
    
    
    $
    209
    
    
    $
    19,265
 Employee termination and related costs
  Facility consolidation costs
  Other contractual costs
  Asset impairments
  50




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  OtherTermination
    
    
    Facility
    
    
    Contractual
    
    
    AssetBenefits
    
    
    Consolidation
    
    
    Costs
    
    
    Impairments
    
    
    Other
    
    
    TotalReserve at December 29, 2002
    
    $
    3,675
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,675Charges from continuing operations in fiscal 2003
    
    
    6,123
    
    
    
    4,837
    
    
    
    2,096
    
    
    
    6,037
    
    
    
    172
    
    
    
    19,265Charges from discontinued operations in fiscal 2003
    
    
    5,851
    
    
    
    2,474
    
    
    
    1,467
    
    
    
    2,193
    
    
    
    238
    
    
    
    12,223Payments and reserve utilization in fiscal 2003
    
    
    7,617
    
    
    
    1,357
    
    
    
    478
    
    
    
    8,230
    
    
    
    145
    
    
    
    17,827Reserve at December 28, 2003
    
    
    8,032
    
    
    
    5,954
    
    
    
    3,085
    
    
    
    
    
    
    
    265
    
    
    
    17,336Charges from continuing operations in fiscal 2004
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    209Charges from discontinued operations in fiscal 2004
    
    
    1,453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,453Payments and reserve utilization in fiscal 2004
    
    
    9,121
    
    
    
    5,392
    
    
    
    2,895
    
    
    
    
    
    
    
    256
    
    
    
    17,664Reserve at January 2, 2005
    
    
    573
    
    
    
    562
    
    
    
    190
    
    
    
    
    
    
    
    9
    
    
    
    1,334Charges from continuing operations in fiscal 2005
    
    
    2,835
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,835Charges from discontinued operations in fiscal 2005
    
    
    6,763
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,763Payments and reserve utilization in fiscal 2005
    
    
    4,748
    
    
    
    562
    
    
    
    190
    
    
    
    
    
    
    
    9
    
    
    
    5,509Reserve at January 1, 2006
    
    $
    5,423
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,423
 6.
Gain on Extinguishment of Debt:
 
  Carrying value of debt at
time of settlement
    
    $
    2,605Settlement payments
    
    
    (1,651
    )Fees and expenses
    
    
    (250
    )Net gain on settlement
    
    $
    704
 7. Accounts Receivable, Net:
  51




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MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  Percent of Total SalesSales to:
    
    2005
    
    
    2004
    
    
    2003Ford
    
    
    45.1
    %
    
    
    43.9
    %
    
    
    44.7
    %DaimlerChrysler
    
    
    18.2
    %
    
    
    16.2
    %
    
    
    14.9
    %General Motors
    
    
    6.8
    %
    
    
    8.9
    %
    
    
    11.1
    %Total
    
    
    70.1
    %
    
    
    69.0
    %
    
    
    70.7
    %
  8. Property and Equipment, Net:
  At January 2,At January 1,
    
    
    20052006
    
    
    (As Restated)Cost:Buildings and leasehold improvements
    
    $
    5,449
    
    
    $
    6,951Machinery and equipment
    
    
    17,709
    
    
    
    39,772Computers, peripherals and software
    
    
    10,828
    
    
    
    36,590Automobiles and trucks
    
    
    1,661
    
    
    
    1,62635,647
    
    
    
    84,939Less accumulated depreciation
    
    
    (31,890
    )
    
    
    (74,473
    )Property and equipment, net
    
    $
    3,757
    
    
    $
    10,466
  9. Goodwill and Intangible Assets:
  52




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  Business
    
    
    HumanOutsourcing
    
    
    Capital
    
    
    EngineeringServices
    
    
    Services
    
    
    Services
    
    
    TotalBalance at December 28, 2003
    
    $
    32,232
    
    
    $
    97,392
    
    
    $
    
    
    
    $
    129,624Accrual for contingent earnout
    
    
    3,800
    
    
    
    
    
    
    
    
    
    
    
    3,800Translation changes and other
    
    
    1,671
    
    
    
    
    
    
    
    
    
    
    
    1,671Balance at January 2, 2005
    
    
    37,703
    
    
    
    97,392
    
    
    
    
    
    
    
    135,095Transfer of business unit
    
    
    (1,809
    )
    
    
    1,809
    
    
    
    
    
    
    
    Goodwill impairment charge
    
    
    
    
    
    
    (89,828
    )
    
    
    
    
    
    
    (89,828
    )Goodwill classified as held
for sale during the fiscal
period
    
    
    (17,815
    )
    
    
    (69
    )
    
    
    
    
    
    
    (17,884
    )Translation changes and other
    
    
    (879
    )
    
    
    
    
    
    
    
    
    
    
    (879
    )Balance at January 1, 2006
    
    $
    17,200
    
    
    $
    9,304
    
    
    $
    
    
    
    $
    26,504
   10. Other Accrued Liabilities:
  At January 2,At January 1,
    
    
    20052006
    
    
    (As Restated)Income and other taxes (including
VAT taxes)
    
    $
    5,344
    
    
    $
    6,534Deferred income/advance payments
    
    
    7,967
    
    
    
    7,618Contingent consideration liability
    
    
    6,217
    
    
    
    6,217Interest
    
    
    12,024
    
    
    
    11,373Other
    
    
    10,219
    
    
    
    12,237Total
    
    $
    41,771
    
    
    $
    43,979
  53




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MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
 11. Debt:
  Interest Rates atJanuary 1,
    
    
    January 1,
    
    
    January 2,2006
    
    
    2006
    
    
    2005Outstanding Debt:Senior credit facility
    
    
    7.25
    %
    
    $
    
    
    
    $
    590Senior secured notes, net of unamortized discount
    
    
    11.00
    %
    
    
    75,224
    
    
    
    75,063Mezzanine term notes, net of unamortized discount
    
    
    11.50
    %
    
    
    24,684
    
    
    
    24,506Fourth lien term notes
    
    
    10.00
    %
    
    
    21,780
    
    
    
    19,710Senior subordinated notes
    
    
    11.375
    %
    
    
    130,000
    
    
    
    130,000Satiz facility
    
    
    4.78
    %
    
    
    
    
    
    
    8,065Other
    
    
    7.00
    %
    
    
    
    
    
    
    2,930251,688
    
    
    
    260,864Less current portion
    
    
    
    
    
    
    
    
    
    
    10,995Total long-term debt
    
    
    
    
    
    $
    251,688
    
    
    $
    249,869
  Fiscal Year
    
    Amount2006
    
    $
    2007
    
    
    99,9092008
    
    
    151,7792009
    
    
    2010 and thereafter
    
    
    Total
    
    $
    251,688
 Senior Secured Notes and Mezzanine Term Notes
    54




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
 Senior Credit Facility
     Fourth Lien Term Notes
  Senior Subordinated Notes
  55




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
 Satiz Credit Facility
 Satiz Facility
 Other Debt
  Fair Value of Debt
  At January 1, 2006
    
    
    At January 2, 2005Fair Value
    
    
    Book Value
    
    
    Fair Value
    
    
    Book ValueSenior secured notes
    
    $
    75,224
    
    
    $
    75,224
    
    
    $
    75,063
    
    
    $
    75,063Mezzanine term notes
    
    
    24,684
    
    
    
    24,684
    
    
    
    24,506
    
    
    
    24,506Fourth lien term notes
    
    
    21,780
    
    
    
    21,780
    
    
    
    19,710
    
    
    
    19,710Senior subordinated notes
    
    
    90,025
    
    
    
    130,000
    
    
    
    102,213
    
    
    
    130,000Credit facilities
    
    
    
    
    
    
    
    
    
    
    11,585
    
    
    
    11,585Total
    
    $
    211,713
    
    
    $
    251,688
    
    
    $
    233,077
    
    
    $
    260,864
  12. Book Overdrafts
  13. Commitments and Contingencies:
  56




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MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
    TotalFiscal year ended:2006
    
    $
    9,3132007
    
    
    5,3252008
    
    
    2,3802009
    
    
    1,8852010
    
    
    1,5912011 and thereafter
    
    
    1,386Total
    
    $
    21,880
  14. Redeemable Series A Preferred Stock:
    57




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MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  15. Employee Benefit Plans:
      58




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MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
 16. Income Taxes:
 Fiscal Year EndedJanuary 2,
    
    
    December 28,January
1,2006
    
    

2005(As
Restated)
    
    
    2003(As
Restated)Income (loss) from continuing operations before
income taxes, minority interests and equity in net
losses of affiliates for U.S. and foreign operations
was:Domestic
    
    $
    (104,520
    )
    
    $
    (12,242
    )
    
    $
    (26,065
    )Foreign
    
    
    13,612
    
    
    
    15,125
    
    
    
    2,589$
    (90,908
    )
    
    $
    2,883
    
    
    $
    (23,476
    )The provision (benefit) for income taxes was:Currently payable:Federal
    
    $
    (6,486
    )
    
    $
    (204
    )
    
    $
    361Foreign
    
    
    3,228
    
    
    
    991
    
    
    
    1,178State
    
    
    86
    
    
    
    (272
    )
    
    
    (44
    )Deferred:Federal
    
    
    6,039
    
    
    
    16
    
    
    
    13,260Foreign
    
    
    (2,160
    )
    
    
    1,245
    
    
    
    2,549$
    707
    
    
    $
    1,776
    
    
    $
    17,304Deferred tax assets (liabilities) included:Deductible goodwill
    
    $
    15,029
    
    
    $
    (5,719
    )
    
    $
    (1,414
    )Accrued interest expense
    
    
    
    
    
    
    214
    
    
    
    184Accrued liabilities and deferred compensation
    
    
    3,813
    
    
    
    3,151
    
    
    
    6,125Net operating losses
    
    
    40,851
    
    
    
    50,396
    
    
    
    39,501Depreciation
    
    
    
    
    
    
    605
    
    
    
    1,493Valuation allowance
    
    
    (56,457
    )
    
    
    (45,099
    )
    
    
    (40,831
    )Property & equipment
    
    
    1,831
    
    
    
    
    
    
    
    Unrealized foreign exchange gain/(loss)
    
    
    (119
    )
    
    
    (266
    )
    
    
    (487
    )Other, net
    
    
    1,686
    
    
    
    1,043
    
    
    
    707Net deferred tax asset
    
    $
    6,634
    
    
    $
    4,325
    
    
    $
    5,278
   59




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MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  Fiscal Year EndedJanuary 1,
    
    
    January 2,
    
    
    December 28,2006
    
    
    2005
    
    
    2003Tax at 35% U.S. statutory rate
    
    $
    (31,818
    )
    
    $
    1,009
    
    
    $
    (8,217
    )Goodwill
    
    
    11,437
    
    
    
    
    
    
    
    Valuation allowance
    
    
    22,823
    
    
    
    4,371
    
    
    
    26,025Effect of foreign tax rates
    
    
    (1,034
    )
    
    
    (1,396
    )
    
    
    (850
    )State and local taxes
    
    
    401
    
    
    
    (176
    )
    
    
    (29
    )Other, net
    
    
    (1,102
    )
    
    
    (2,032
    )
    
    
    375$
    707
    
    
    $
    1,776
    
    
    $
    17,304
  17. Segment Information
   60




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MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  Business
    
    HumanOutsourcing
    
    Capital
    
    EngineeringServices
    

Services
    
    Services
    
    Other
    
    TotalFiscal 2005:Net sales  external
    
    $
    169,155
    
    
    $
    177,136
    
    
    $
    88,675
    
    
    $
    
    
    
    $
    434,966Net intercompany sales
    
    
    48
    
    
    
    3
    
    
    
    15
    
    
    
    (66
    )
    
    
    EBITA
    
    
    23,572
    
    
    
    15,158
    
    
    
    7,729
    
    
    
    
    
    
    
    46,459Depreciation
    
    
    769
    
    
    
    832
    
    
    
    1,301
    
    
    
    1,123
    
    
    
    4,025Capital expenditures
    
    
    1,055
    
    
    
    27
    
    
    
    823
    
    
    
    94
    
    
    
    1,999Accounts receivable
    
    
    36,810
    
    
    
    46,826
    
    
    
    12,268
    
    
    
    780
    
    
    
    96,684Fiscal 2004 (As Restated):Net sales  external
    
    $
    177,964
    
    
    $
    190,307
    
    
    $
    86,034
    
    
    $
    
    
    
    $
    454,305Net intercompany sales
    
    
    175
    
    
    
    6
    
    
    
    2
    
    
    
    (183
    )
    
    
    EBITA
    
    
    26,447
    
    
    
    11,575
    
    
    
    5,731
    
    
    
    
    
    
    
    43,753Depreciation
    
    
    1,350
    
    
    
    991
    
    
    
    1,394
    
    
    
    2,281
    
    
    
    6,016Capital expenditures
    
    
    578
    
    
    
    105
    
    
    
    151
    
    
    
    138
    
    
    
    972Accounts receivable
    
    
    79,786
    
    
    
    59,138
    
    
    
    17,928
    
    
    
    251
    
    
    
    157,103Fiscal 2003 (As Restated):Net sales  external
    
    $
    173,814
    
    
    $
    231,907
    
    
    $
    98,182
    
    
    $
    
    
    
    $
    503,903Net intercompany sales
    
    
    7,279
    
    
    
    288
    
    
    
    377
    
    
    
    (7,944
    )
    
    
    EBITA
    
    
    17,831
    
    
    
    14,392
    
    
    
    (56
    )
    
    
    
    
    
    
    32,167Depreciation
    
    
    4,944
    
    
    
    1,582
    
    
    
    8,756
    
    
    
    4,640
    
    
    
    19,922Capital expenditures
    
    
    804
    
    
    
    513
    
    
    
    731
    
    
    
    540
    
    
    
    2,588Accounts receivable
    
    
    135,413
    
    
    
    32,318
    
    
    
    49,276
    
    
    
    650
    
    
    
    217,657
  Fiscal Year EndedJanuary 2,
    
    
    December 28,January 1,
    
    
    2005
    
    
    20032006
    
    
    (As Restated)
    
    
    (As Restated)Total segment EBITA before minority interests and
equity in net losses of affiliates
    
    $
    46,459
    
    
    $
    43,753
    
    
    $
    32,167Net costs not allocated to segments
    
    
    (12,631
    )
    
    
    (8,141
    )
    
    
    (23,194
    )Goodwill impairment charges
    
    
    (89,828
    )
    
    
    
    
    
    
    Gain on
extinguishment of debt
    
    
    704
    
    
    
    
    
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    (1,652
    )Interest expense
    
    
    (33,875
    )
    
    
    (30,741
    )
    
    
    (28,518
    )Michigan single business tax and other similar taxes
    
    
    (1,737
    )
    
    
    (1,988
    )
    
    
    (2,279
    )Consolidated income (loss) from continuing operations before
taxes, minority interests and
equity in affiliates
    
    $
    (90,908
    )
    
    $
    2,883
    
    
    $
    (23,476
    )
 61




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  Net
Sales
    
    
    Long-Lived AssetsFiscal Year
    
    
    Fiscal Year
    
    
    Fiscal YearEnded
    
    
    Ended
    
    
    Ended
    
    
    
    
    
    January 2,
    
    
    December 28,January 1,
    
    
    January 2,
    
    
    December 28,
    
    
    January 1,
    
    
    2005
    
    
    20032006
    
    
    2005
    
    
    2003
    
    
    2006
    
    
    (As Restated)
    
    
    (As Restated)United States
    
    $
    299,472
    
    
    $
    334,997
    
    
    $
    392,587
    
    
    $
    32,863
    
    
    $
    127,245
    
    
    $
    120,295Europe
    
    
    104,297
    
    
    
    95,389
    
    
    
    89,213
    
    
    
    3,685
    
    
    
    27,684
    
    
    
    40,194All other
    
    
    31,197
    
    
    
    23,919
    
    
    
    22,103
    
    
    
    523
    
    
    
    516
    
    
    
    462Total
    
    $
    434,966
    
    
    $
    454,305
    
    
    $
    503,903
    
    
    $
    37,071
    
    
    $
    155,445
    
    
    $
    160,951
 18. Stock Based Compensation
    WeightedaverageNumber of
    
    
    Weighted
    
    
    remainingStock
    
    
    average exercise
    
    
    contractual lifeOptions
    
    
    price
    
    
    in yearsOutstanding at December 29, 2002
    
    
    30,025
    
    
    $
    68.91
    
    
    
    8.4Granted
    
    
    19,250
    
    
    
    64.42
    
    
    
    Forfeited
    
    
    (8,750
    )
    
    
    80.00
    
    
    
    Outstanding at December 28, 2003
    
    
    40,525
    
    
    
    64.38
    
    
    
    8.6Granted
    
    
    2,500
    
    
    
    80.00
    
    
    
    Forfeited
    
    
    (2,375
    )
    
    
    80.00
    
    
    
    Outstanding at January 2, 2005
    
    
    40,650
    
    
    
    64.43
    
    
    
    7.6Granted
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (1,000
    )
    
    
    80.00
    
    
    
    Outstanding at January 1, 2006
    
    
    39,650
    
    
    $
    64.04
    
    
    
    6.6
 62




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  WeightedNumber of
    
    AverageFiscal Year
    
    
    
    
    
    Stock
    
    exercise priceEnded
    
    Exercise Price
    
    Options
    
    per share2005
    
    60.00 - 80.00 per share
    
    
    24,300
    
    
    $
    59.712004
    
    60.00 - 80.00 per share
    
    
    17,450
    
    
    $
    60.922003
    
    60.00 - 80.00 per share
    
    
    10,275
    
    
    $
    63.16
  2004
    
    2003Risk free interest rate
    
    
    3.70
    %
    
    
    3.10
    %Expected option lives
    

    7 years
    
    
    7 yearsExpected volatility
    
    
    0.0
    %
    
    
    0.0
    %
 19. Subsequent Events
 
    
    
    Extend the maturity date of the Credit Agreement from August 1, 2006 to January 15,
2007;
    
    Reduce the aggregate commitments under the Credit Agreement from $45 million to $25
million subject to limitations based on domestic accounts receivable and cash
collateral held in blocked accounts in connection with prepayments of obligations
under the Credit Agreement;
    
    Allow for future permanent reductions of commitment and related borrowings via use
of funds from any asset sales held in blocked accounts by the bank; and
    
    Modify certain covenants and restrictions on the Companys ability to borrow under
the Credit Agreement, including the elimination of all commitments related to
non-domestic subsidiaries of the Company.
 63




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
  64




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##### Table of Contents



MSX INTERNATIONAL, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
(dollars in thousands unless otherwise stated)
 20. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:
   
    
    MSXI  the parent company and issuer
    
    The guarantor subsidiaries
    
    The non-guarantor subsidiaries
    
    MSXI on a consolidated basis
  65




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##### Table of Contents



20. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of January 1, 2006
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,995
    
    
    $
    432
    
    
    $
    15,310
    
    
    $
    
    
    
    $
    27,737Accounts receivable, net
    
    
    
    
    
    
    55,279
    
    
    
    41,405
    
    
    
    
    
    
    
    96,684Inventory
    
    
    
    
    
    
    778
    
    
    
    7
    
    
    
    
    
    
    
    785Prepaid expenses and other assets
    
    
    
    
    
    
    2,095
    
    
    
    1,613
    
    
    
    
    
    
    
    3,708Assets held for sale
    
    
    
    
    
    
    7,327
    
    
    
    28,902
    
    
    
    
    
    
    
    36,229Deferred income taxes, net
    
    
    
    
    
    
    3,718
    
    
    
    5,766
    
    
    
    (3,850
    )
    
    
    5,634Total current assets
    
    
    11,995
    
    
    
    69,629
    
    
    
    93,003
    
    
    
    (3,850
    )
    
    
    170,777Property and equipment, net
    
    
    
    
    
    
    2,154
    
    
    
    1,603
    
    
    
    
    
    
    
    3,757Goodwill, net
    
    
    
    
    
    
    26,475
    
    
    
    29
    
    
    
    
    
    
    
    26,504Investment in subsidiaries
    
    
    14,493
    
    
    
    (6,006
    )
    
    
    
    
    
    
    (8,487
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    497
    
    
    
    5,091
    
    
    
    
    
    
    
    5,588Other assets
    
    
    3,698
    
    
    
    2,760
    
    
    
    352
    
    
    
    
    
    
    
    6,810Deferred income taxes, net
    
    
    3,373
    
    
    
    
    
    
    
    1,138
    
    
    
    (3,511
    )
    
    
    1,000Total assets
    
    $
    33,559
    
    
    $
    95,509
    
    
    $
    101,216
    
    
    $
    (15,848
    )
    
    $
    214,436LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable and drafts
    
    
    
    
    
    
    42,049
    
    
    
    21,418
    
    
    
    
    
    
    
    63,467Accrued liabilities
    
    
    11,499
    
    
    
    26,655
    
    
    
    23,523
    
    
    
    
    
    
    
    61,677Liabilities held for sale
    
    
    
    
    
    
    1,653
    
    
    
    29,679
    
    
    
    
    
    
    
    31,332Deferred income taxes, net
    
    
    3,850
    
    
    
    
    
    
    
    
    
    
    
    (3,850
    )
    
    
    Total current liabilities
    
    
    15,349
    
    
    
    70,357
    
    
    
    74,620
    
    
    
    (3,850
    )
    
    
    156,476Long-term debt
    
    
    234,610
    
    
    
    
    
    
    
    17,078
    
    
    
    
    
    
    
    251,688Intercompany accounts
    
    
    (8,132
    )
    
    
    2,160
    
    
    
    5,972
    
    
    
    
    
    
    
    Long-term deferred compensation and other
liabilities
    
    
    
    
    
    
    4,916
    
    
    
    486
    
    
    
    
    
    
    
    5,402Liabilities held for sale
    
    
    
    
    
    
    72
    
    
    
    9,066
    
    
    
    
    
    
    
    9,138Deferred income taxes, net
    
    
    
    
    
    
    3,511
    
    
    
    
    
    
    
    (3,511
    )
    
    
    Total liabilities
    
    
    241,827
    
    
    
    81,016
    
    
    
    107,222
    
    
    
    (7,361
    )
    
    
    422,704Redeemable Series A Preferred Stock
    
    
    102,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,566Shareholders equity (deficit)
    
    
    (310,834
    )
    
    
    14,493
    
    
    
    (6,006
    )
    
    
    (8,487
    )
    
    
    (310,834
    )Total liabilities and shareholders
equity (deficit)
    
    $
    33,559
    
    
    $
    95,509
    
    
    $
    101,216
    
    
    $
    (15,848
    )
    
    $
    214,436
 66




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##### Table of Contents



20. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of January 2, 2005 (As Restated)
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,650
    
    
    $
    11,570
    
    
    $
    17,157
    
    
    $
    
    
    
    $
    34,377Accounts receivable, net
    
    
    
    
    
    
    68,099
    
    
    
    89,004
    
    
    
    
    
    
    
    157,103Inventory
    
    
    
    
    
    
    9,121
    
    
    
    2,132
    
    
    
    
    
    
    
    11,253Prepaid expenses and other assets
    
    
    
    
    
    
    2,736
    
    
    
    666
    
    
    
    
    
    
    
    3,402Assets held for sale
    
    
    
    
    
    
    
    
    
    
    13,453
    
    
    
    
    
    
    
    13,453Deferred income taxes, net
    
    
    
    
    
    
    2,569
    
    
    
    5,341
    
    
    
    (2,569
    )
    
    
    5,341Total current assets
    
    
    5,650
    
    
    
    94,095
    
    
    
    127,753
    
    
    
    (2,569
    )
    
    
    224,929Property and equipment, net
    
    
    
    
    
    
    4,367
    
    
    
    6,099
    
    
    
    
    
    
    
    10,466Goodwill, net
    
    
    
    
    
    
    116,302
    
    
    
    18,793
    
    
    
    
    
    
    
    135,095Investment in subsidiaries
    
    
    108,303
    
    
    
    22,009
    
    
    
    
    
    
    
    (130,312
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    2,618
    
    
    
    
    
    
    
    2,618Other assets
    
    
    5,767
    
    
    
    3,032
    
    
    
    664
    
    
    
    
    
    
    
    9,463Deferred income taxes, net
    
    
    1,257
    
    
    
    
    
    
    
    
    
    
    
    (1,257
    )
    
    
    Total assets
    
    $
    120,977
    
    
    $
    239,805
    
    
    $
    155,927
    
    
    $
    (134,138
    )
    
    $
    382,571LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    10,995
    
    
    $
    
    
    
    $
    10,995Accounts payable and drafts
    
    
    
    
    
    
    62,594
    
    
    
    54,657
    
    
    
    
    
    
    
    117,251Accrued liabilities
    
    
    10,998
    
    
    
    27,447
    
    
    
    27,646
    
    
    
    
    
    
    
    66,091Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    10,133
    
    
    
    
    
    
    
    10,133Deferred income taxes, net
    
    
    2,569
    
    
    
    
    
    
    
    
    
    
    
    (2,569
    )
    
    
    Total current liabilities
    
    
    13,567
    
    
    
    90,041
    
    
    
    103,431
    
    
    
    (2,569
    )
    
    
    204,470Long-term debt
    
    
    232,521
    
    
    
    
    
    
    
    17,348
    
    
    
    
    
    
    
    249,869Intercompany accounts
    
    
    (32,961
    )
    
    
    31,929
    
    
    
    1,032
    
    
    
    
    
    
    
    Long-term deferred compensation and other
liabilities
    
    
    
    
    
    
    8,275
    
    
    
    11,091
    
    
    
    
    
    
    
    19,366Deferred income taxes, net
    
    
    
    
    
    
    1,257
    
    
    
    1,016
    
    
    
    (1,257
    )
    
    
    1,016Total liabilities
    
    
    213,127
    
    
    
    131,502
    
    
    
    133,918
    
    
    
    (3,826
    )
    
    
    474,721Redeemable Series A Preferred Stock
    
    
    91,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,312Shareholders equity (deficit)
    
    
    (183,462
    )
    
    
    108,303
    
    
    
    22,009
    
    
    
    (130,312
    )
    
    
    (183,462
    )Total liabilities and shareholders
equity (deficit)
    
    $
    120,977
    
    
    $
    239,805
    
    
    $
    155,927
    
    
    $
    (134,138
    )
    
    $
    382,571
 67




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##### Table of Contents



20. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
for the three fiscal years ended January 1, 2006
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Year Ended January 1, 2006Net sales
    
    $
    
    
    
    $
    299,539
    
    
    $
    135,494
    
    
    $
    (67
    )
    
    $
    434,966Cost of sales
    
    
    
    
    
    
    261,253
    
    
    
    107,170
    
    
    
    (67
    )
    
    
    368,356Gross profit
    
    
    
    
    
    
    38,286
    
    
    
    28,324
    
    
    
    
    
    
    
    66,610Selling, general and administrative expenses
    
    
    
    
    
    
    21,335
    
    
    
    10,349
    
    
    
    
    
    
    
    31,684Amortization and goodwill and intangibles
    
    
    
    
    
    
    89,828
    
    
    
    
    
    
    
    
    
    
    
    89,828Restructuring and severance costs
    
    
    
    
    
    
    1,792
    
    
    
    1,043
    
    
    
    
    
    
    
    2,835Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (704
    )
    
    
    
    
    
    
    (704
    )Income (loss) from continuing operations before
interest, income taxes, equity in affiliates
    
    
    
    
    
    
    (74,669
    )
    
    
    17,636
    
    
    
    
    
    
    
    (57,033
    )Interest expense, net
    
    
    26,914
    
    
    
    2,937
    
    
    
    4,024
    
    
    
    
    
    
    
    33,875Income (loss) from continuing operations before
income taxes, equity in affiliates
    
    
    (26,914
    )
    
    
    (77,606
    )
    
    
    13,612
    
    
    
    
    
    
    
    (90,908
    )Income tax provision (benefit)
    
    
    (4,605
    )
    
    
    4,244
    
    
    
    1,068
    
    
    
    
    
    
    
    707Equity in affiliates
    
    
    (69,306
    )
    
    
    12,544
    
    
    
    
    
    
    
    56,762
    
    
    
    Income (loss) from continuing operations
    
    
    (91,615
    )
    
    
    (69,306
    )
    
    
    12,544
    
    
    
    56,762
    
    
    
    (91,615
    )Income (loss) from discontinued operations, net
    
    
    (22,795
    )
    
    
    (22,795
    )
    
    
    (23,920
    )
    
    
    46,715
    
    
    
    (22,795
    )Net income (loss)
    
    $
    (114,410
    )
    
    $
    (92,101
    )
    
    $
    (11,376
    )
    
    $
    103,477
    
    
    $
    (114,410
    )Fiscal Year Ended January 2, 2005 (As Restated)Net sales
    
    $
    
    
    
    $
    335,181
    
    
    $
    119,307
    
    
    $
    (183
    )
    
    $
    454,305Cost of sales
    
    
    
    
    
    
    291,797
    
    
    
    93,508
    
    
    
    (183
    )
    
    
    385,122Gross profit
    
    
    
    
    
    
    43,384
    
    
    
    25,799
    
    
    
    
    
    
    
    69,183Selling, general and administrative expenses
    
    
    
    
    
    
    26,646
    
    
    
    8,704
    
    
    
    
    
    
    
    35,350Restructuring and severance costs
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    209Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    16,529
    
    
    
    17,095
    
    
    
    
    
    
    
    33,624Interest expense, net
    
    
    25,267
    
    
    
    4,374
    
    
    
    1,100
    
    
    
    
    
    
    
    30,741Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (25,267
    )
    
    
    12,155
    
    
    
    15,995
    
    
    
    
    
    
    
    2,883Income tax provision (benefit)
    
    
    (5,135
    )
    
    
    4,677
    
    
    
    2,234
    
    
    
    
    
    
    
    1,776Minority interests and equity in affiliates, net of taxes
    
    
    21,239
    
    
    
    13,761
    
    
    
    
    
    
    
    (35,000
    )
    
    
    Income from continuing operations
    
    
    1,107
    
    
    
    21,239
    
    
    
    13,761
    
    
    
    (35,000
    )
    
    
    1,107Income (loss) from discontinued operations, net
    
    
    550
    
    
    
    550
    
    
    
    (21
    )
    
    
    (529
    )
    
    
    550Net income (loss)
    
    $
    1,657
    
    
    $
    21,789
    
    
    $
    13,740
    
    
    $
    (35,529
    )
    
    $
    1,657
 68




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##### Table of Contents



20. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS  for the three
fiscal years ended January 1, 2006
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Year Ended December 28, 2003 (As Restated)Net sales
    
    $
    
    
    
    $
    400,532
    
    
    $
    111,315
    
    
    $
    (7,944
    )
    
    $
    503,903Cost of sales
    
    
    
    
    
    
    348,753
    
    
    
    88,824
    
    
    
    (7,944
    )
    
    
    429,633Gross profit
    
    
    
    
    
    
    51,779
    
    
    
    22,491
    
    
    
    
    
    
    
    74,270Selling, general and administrative expenses
    
    
    
    
    
    
    32,692
    
    
    
    15,619
    
    
    
    
    
    
    
    48,311Restructuring and severance costs
    
    
    
    
    
    
    16,136
    
    
    
    3,129
    
    
    
    
    
    
    
    19,265Loss on asset impairment and ale
    
    
    
    
    
    
    
    
    
    
    1,652
    
    
    
    
    
    
    
    1,652Income (loss) from continuing operations before
interest, income taxes, and equity in affiliates
    
    
    
    
    
    
    2,951
    
    
    
    2,091
    
    
    
    
    
    
    
    5,042Interest expense, net
    
    
    22,271
    
    
    
    7,052
    
    
    
    (805
    )
    
    
    
    
    
    
    28,518Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (22,271
    )
    
    
    (4,101
    )
    
    
    2,896
    
    
    
    
    
    
    
    (23,476
    )Income tax provision (benefit)
    
    
    14,109
    
    
    
    (528
    )
    
    
    3,723
    
    
    
    
    
    
    
    17,304Equity in affiliates
    
    
    (4,360
    )
    
    
    (476
    )
    
    
    (1
    )
    
    
    4,877
    
    
    
    40Loss from continuing operations
    
    
    (40,740
    )
    
    
    (4,049
    )
    
    
    (828
    )
    
    
    4,877
    
    
    
    (40,740
    )Loss from discontinued operations, net
    
    
    (26,038
    )
    
    
    (26,038
    )
    
    
    (26,197
    )
    
    
    52,235
    
    
    
    (26,038
    )Net income (loss)
    
    $
    (66,778
    )
    
    $
    (30,087
    )
    
    $
    (27,025
    )
    
    $
    57,112
    
    
    $
    (66,778
    )
 69




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##### Table of Contents



20. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
for the fiscal year ended January 1, 2006
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net loss
    
    $
    (114,410
    )
    
    $
    (92,101
    )
    
    $
    (11,376
    )
    
    $
    103,477
    
    
    $
    (114,410
    )Adjustments to reconcile net income to net
cash provided by (used for) operating activities:Equity in affiliates
    
    
    92,101
    
    
    
    11,376
    
    
    
    
    
    
    
    (103,477
    )
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (704
    )
    
    
    
    
    
    
    (704
    )Depreciation
    
    
    
    
    
    
    2,924
    
    
    
    2,022
    
    
    
    
    
    
    
    4,946Goodwill impairment charges
    
    
    
    
    
    
    89,827
    
    
    
    16,868
    
    
    
    
    
    
    
    106,695Amortization of debt issuance costs
    
    
    4,191
    
    
    
    
    
    
    
    437
    
    
    
    
    
    
    
    4,628Deferred taxes
    
    
    (835
    )
    
    
    835
    
    
    
    (2,579
    )
    
    
    
    
    
    
    (2,579
    )Loss on sale/disposal of property and
equipment
    
    
    
    
    
    
    (23
    )
    
    
    212
    
    
    
    
    
    
    
    189(Increase) decrease in receivables, net
    
    
    
    
    
    
    11,066
    
    
    
    24,581
    
    
    
    
    
    
    
    35,647(Increase) decrease in inventory
    
    
    
    
    
    
    3,339
    
    
    
    472
    
    
    
    
    
    
    
    3,811(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    537
    
    
    
    (875
    )
    
    
    
    
    
    
    (338
    )Increase (decrease) in current liabilities
    
    
    499
    
    
    
    (16,848
    )
    
    
    (13,893
    )
    
    
    
    
    
    
    (30,242
    )Other, net
    
    
    
    
    
    
    (910
    )
    
    
    (2,998
    )
    
    
    
    
    
    
    (3,908
    )Net cash provided by (used for) operating activities
    
    
    (18,454
    )
    
    
    10,022
    
    
    
    16,167
    
    
    
    
    
    
    
    7,735Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (1,123
    )
    
    
    (3,925
    )
    
    
    
    
    
    
    (5,048
    )Payments for contingent consideration and minority interests
    
    
    
    
    
    
    (2,417
    )
    
    
    
    
    
    
    
    
    
    
    (2,417
    )Proceeds from sale/disposal of businesses, net of expenses paid
    
    
    
    
    
    
    
    
    
    
    5,088
    
    
    
    
    
    
    
    5,088Proceeds from sale/disposition of equipment and investments
    
    
    
    
    
    
    55
    
    
    
    172
    
    
    
    
    
    
    
    227Net cash provided by (used for) investing activities
    
    
    
    
    
    
    (3,485
    )
    
    
    1,335
    
    
    
    
    
    
    
    (2,150
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    24,831
    
    
    
    (14,838
    )
    
    
    (9,993
    )
    
    
    
    
    
    
    Repayment of debt
    
    
    
    
    
    
    
    
    
    
    (1,901
    )
    
    
    
    
    
    
    (1,901
    )Debt issuance costs
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Changes in revolving debt, net
    
    
    
    
    
    
    
    
    
    
    (7,885
    )
    
    
    
    
    
    
    (7,885
    )Change in book overdrafts, net
    
    
    
    
    
    
    (2,837
    )
    
    
    375
    
    
    
    
    
    
    
    (2,462
    )Net cash provided by (used for) financing activities
    
    
    24,799
    
    
    
    (17,675
    )
    
    
    (19,404
    )
    
    
    
    
    
    
    (12,280
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    328
    
    
    
    
    
    
    
    328Cash and cash equivalents:Increase (decrease) for the period
    
    
    6,345
    
    
    
    (11,138
    )
    
    
    (1,574
    )
    
    
    
    
    
    
    (6,367
    )Balance, beginning of period
    
    
    5,650
    
    
    
    11,570
    
    
    
    17,157
    
    
    
    
    
    
    
    34,377Balance, end of period (including $273 of cash held for sale)
    
    $
    11,995
    
    
    $
    432
    
    
    $
    15,583
    
    
    $
    
    
    
    $
    28,010
 70




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##### Table of Contents



20. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS  for the
fiscal year ended January 2, 2005 
(As Restated)
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income
    
    $
    1,657
    
    
    $
    21,789
    
    
    $
    13,740
    
    
    $
    (35,529
    )
    
    $
    1,657Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:Equity in affiliates
    
    
    (21,789
    )
    
    
    (13,740
    )
    
    
    
    
    
    
    35,529
    
    
    
    Depreciation
    
    
    
    
    
    
    4,222
    
    
    
    4,321
    
    
    
    
    
    
    
    8,543Amortization of debt issuance costs
    
    
    4,040
    
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    4,345Deferred taxes
    
    
    (4,067
    )
    
    
    4,067
    
    
    
    953
    
    
    
    
    
    
    
    953(Gain) loss on sale/disposal of property
and equipment
    
    
    
    
    
    
    20
    
    
    
    41
    
    
    
    
    
    
    
    61(Increase) decrease in receivables, net
    
    
    
    
    
    
    27,055
    
    
    
    21,359
    
    
    
    
    
    
    
    48,414(Increase) decrease in inventory
    
    
    
    
    
    
    (3,487
    )
    
    
    (56
    )
    
    
    
    
    
    
    (3,543
    )(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    1,414
    
    
    
    88
    
    
    
    
    
    
    
    1,502Increase (decrease) in current liabilities
    
    
    1,574
    
    
    
    (23,127
    )
    
    
    (27,302
    )
    
    
    
    
    
    
    (48,855
    )Other, net
    
    
    
    
    
    
    939
    
    
    
    1,495
    
    
    
    
    
    
    
    2,434Net cash provided by (used for) operating activities
    
    
    (18,585
    )
    
    
    19,152
    
    
    
    14,944
    
    
    
    
    
    
    
    15,511Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (512
    )
    
    
    (2,211
    )
    
    
    
    
    
    
    (2,723
    )Payments for contingent consideration and
minority interests
    
    
    
    
    
    
    (4,000
    )
    
    
    (354
    )
    
    
    
    
    
    
    (4,354
    )Proceeds
from sale/disposition of equipment and
investments
    
    
    
    
    
    
    46
    
    
    
    278
    
    
    
    
    
    
    
    324Other, net
    
    
    
    
    
    
    2,269
    
    
    
    
    
    
    
    
    
    
    
    2,269Net cash used for investing activities
    
    
    
    
    
    
    (2,197
    )
    
    
    (2,287
    )
    
    
    
    
    
    
    (4,484
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    6,117
    
    
    
    4,945
    
    
    
    (11,062
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (482
    )
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    (419
    )Changes in revolving debt, net
    
    
    
    
    
    
    
    
    
    
    (1,621
    )
    
    
    
    
    
    
    (1,621
    )Change in book overdrafts
    
    
    
    
    
    
    (10,721
    )
    
    
    
    
    
    
    
    
    
    
    (10,721
    )Net cash provided by (used for) financing activities
    
    
    5,635
    
    
    
    (5,776
    )
    
    
    (12,620
    )
    
    
    
    
    
    
    (12,761
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (539
    )
    
    
    
    
    
    
    (539
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    (12,950
    )
    
    
    11,179
    
    
    
    (502
    )
    
    
    
    
    
    
    (2,273
    )Balance, beginning of period
    
    
    18,600
    
    
    
    391
    
    
    
    17,659
    
    
    
    
    
    
    
    36,650Balance, end of period
    
    $
    5,650
    
    
    $
    11,570
    
    
    $
    17,157
    
    
    $
    
    
    
    $
    34,377
 71




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##### Table of Contents



20. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS  for the
fiscal year ended December 28, 2003 
(As Restated)
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net loss
    
    $
    (66,778
    )
    
    $
    (30,087
    )
    
    $
    (27,025
    )
    
    $
    57,112
    
    
    $
    (66,778
    )Adjustments to reconcile net income to net
cash provided by (used for) operating activities:Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    1,893
    
    
    
    
    
    
    
    1,893Minority interests and equity in affiliates
    
    
    30,087
    
    
    
    26,984
    
    
    
    (179
    )
    
    
    (57,111
    )
    
    
    (219
    )Depreciation
    
    
    
    
    
    
    14,961
    
    
    
    10,562
    
    
    
    
    
    
    
    25,523Amortization of debt issuance costs
    
    
    6,055
    
    
    
    
    
    
    
    519
    
    
    
    
    
    
    
    6,574Deferred taxes
    
    
    10,050
    
    
    
    2,822
    
    
    
    1,227
    
    
    
    
    
    
    
    14,099Loss on sale/disposal of property and
equipment
    
    
    
    
    
    
    126
    
    
    
    575
    
    
    
    
    
    
    
    701(Increase) decrease in receivables, net
    
    
    181
    
    
    
    15,645
    
    
    
    (22,097
    )
    
    
    
    
    
    
    (6,271
    )(Increase) decrease in inventory
    
    
    
    
    
    
    (2,229
    )
    
    
    (656
    )
    
    
    
    
    
    
    (2,885
    )(Increase) decrease in prepaid expenses
and other assets
    
    
    7
    
    
    
    (652
    )
    
    
    1,653
    
    
    
    
    
    
    
    1,008Increase (decrease) in current liabilities
    
    
    6,139
    
    
    
    2,755
    
    
    
    31,089
    
    
    
    
    
    
    
    39,983Other, net
    
    
    323
    
    
    
    (1,121
    )
    
    
    1,596
    
    
    
    (312
    )
    
    
    486Net cash provided by (used for) operating activities
    
    
    (13,936
    )
    
    
    29,204
    
    
    
    (843
    )
    
    
    (311
    )
    
    
    14,114Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (2,560
    )
    
    
    (2,269
    )
    
    
    
    
    
    
    (4,829
    )Proceeds
from sale/disposition of equipment and
investments
    
    
    
    
    
    
    548
    
    
    
    1,604
    
    
    
    
    
    
    
    2,152Other, net
    
    
    
    
    
    
    (228
    )
    
    
    (1
    )
    
    
    
    
    
    
    (229
    )Net cash used for investing activities
    
    
    
    
    
    
    (2,240
    )
    
    
    (666
    )
    
    
    
    
    
    
    (2,906
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    32,601
    
    
    
    (22,239
    )
    
    
    (10,694
    )
    
    
    332
    
    
    
    Proceeds from issuance of debts
    
    
    83,482
    
    
    
    
    
    
    
    16,372
    
    
    
    
    
    
    
    99,854Repayment of debt
    
    
    (65,798
    )
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (65,808
    )Debt issuance costs
    
    
    (5,881
    )
    
    
    
    
    
    
    (545
    )
    
    
    
    
    
    
    (6,426
    )Changes in revolving debt, net
    
    
    (11,868
    )
    
    
    
    
    
    
    1,958
    
    
    
    
    
    
    
    (9,910
    )Change in book overdrafts
    
    
    
    
    
    
    (4,478
    )
    
    
    (52
    )
    
    
    
    
    
    
    (4,530
    )Net cash provided by (used for) financing activities
    
    
    32,536
    
    
    
    (26,727
    )
    
    
    7,039
    
    
    
332
    
    
    
    13,180Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    1,348
    
    
    
    (21
    )
    
    
    1,327Cash and cash equivalents:Increase for the period
    
    
    18,600
    
    
    
    237
    
    
    
    6,878
    
    
    
    
    
    
    
    25,715Balance, beginning of period
    
    
    
    
    
    
    154
    
    
    
    10,781
    
    
    
    
    
    
    
    10,935Balance, end of period
    
    $
    18,600
    
    
    $
    391
    
    
    $
    17,659
    
    
    $
    
    
    
    $
    36,650
 72




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##### Table of Contents



21. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:
  
    
    MSXI  the parent company
    
    MSXI Limited  the issuer
    
    The guarantor subsidiaries
    
    The non -guarantor subsidiaries
    
    MSXI on a consolidated basis
  73




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##### Table of Contents



21. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET  as of January 1, 2006
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,995
    
    
    $
    6,980
    
    
    $
    432
    
    
    $
    8,330
    
    
    $
    
    
    
    $
    27,737Accounts receivable, net
    
    
    
    
    
    
    10,616
    
    
    
    55,279
    
    
    
    30,789
    
    
    
    
    
    
    
    96,684Inventory
    
    
    
    
    
    
    
    
    
    
    778
    
    
    
    7
    
    
    
    
    
    
    
    785Prepaid expenses and other assets
    
    
    
    
    
    
    578
    
    
    
    2,095
    
    
    
    1,035
    
    
    
    
    
    
    
    3,708Assets held for sale
    
    
    
    
    
    
    
    
    
    
    7,327
    
    
    
    28,902
    
    
    
    
    
    
    
    36,229Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    3,718
    
    
    
    6,023
    
    
    
    (4,107
    )
    
    
    5,634Total current assets
    
    
    11,995
    
    
    
    18,174
    
    
    
    69,629
    
    
    
    75,086
    
    
    
    (4,107
    )
    
    
    170,777Property and equipment, net
    
    
    
    
    
    
    300
    
    
    
    2,154
    
    
    
    1,303
    
    
    
    
    
    
    
    3,757Goodwill, net
    
    
    
    
    
    
    29
    
    
    
    26,475
    
    
    
    
    
    
    
    
    
    
    
    26,504Investment in subsidiaries
    
    
    14,493
    
    
    
    
    
    
    
    (6,006
    )
    
    
    13,920
    
    
    
    (22,407
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    497
    
    
    
    5,091
    
    
    
    
    
    
    
    5,588Other assets
    
    
    3,698
    
    
    
    288
    
    
    
    2,760
    
    
    
    64
    
    
    
    
    
    
    
    6,810Deferred income taxes, net
    
    
    3,373
    
    
    
    2,562
    
    
    
    
    
    
    
    
    
    
    
    (4,935
    )
    
    
    1,000Total assets
    
    $
    33,559
    
    
    $
    21,353
    
    
    $
    95,509
    
    
    $
    95,464
    
    
    $
    (31,449
    )
    
    $
    214,436LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable and drafts
    
    
    
    
    
    
    7,409
    
    
    
    42,049
    
    
    
    14,009
    
    
    
    
    
    
    
    63,467Accrued liabilities
    
    
    11,499
    
    
    
    5,609
    
    
    
    26,655
    
    
    
    17,914
    
    
    
    
    
    
    
    61,677Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    1,653
    
    
    
    29,679
    
    
    
    
    
    
    
    31,332Deferred income taxes, net
    
    
    3,850
    
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    (4,107
    )
    
    
    Total current liabilities
    
    
    15,349
    
    
    
    13,275
    
    
    
    70,357
    
    
    
    61,602
    
    
    
    (4,107
    )
    
    
    156,476Long-term debt
    
    
    234,610
    
    
    
    17,078
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251,688Intercompany accounts
    
    
    (8,132
    )
    
    
    (22,870
    )
    
    
    2,160
    
    
    
    28,842
    
    
    
    
    
    
    
    Long-term deferred compensation and
other liabilities
    
    
    
    
    
    
    (50
    )
    
    
    4,916
    
    
    
    536
    
    
    
    
    
    
    
    5,402Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    9,066
    
    
    
    
    
    
    
    9,138Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    3,511
    
    
    
    1,424
    
    
    
    (4,935
    )
    
    
    Total liabilities
    
    
    241,827
    
    
    
    7,433
    
    
    
    81,016
    
    
    
    101,470
    
    
    
    (9,042
    )
    
    
    422,704Redeemable Series A Preferred Stock
    
    
    102,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,566Shareholders equity (deficit)
    
    
    (310,834
    )
    
    
    13,920
    
    
    
    14,493
    
    
    
    (6,006
    )
    
    
    (22,407
    )
    
    
    (310,834
    )Total liabilities and shareholders
equity (deficit)
    
    $
    33,559
    
    
    $
    21,353
    
    
    $
    95,509
    
    
    $
    95,464
    
    
    $
    (31,449
    )
    
    $
    214,436
 74




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##### Table of Contents



21. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of January 2, 2005
(As Restated)
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,650
    
    
    $
    18
    
    
    $
    11,570
    
    
    $
    17,139
    
    
    $
    
    
    
    $
    34,377Accounts receivable, net
    
    
    
    
    
    
    12,713
    
    
    
    68,099
    
    
    
    76,291
    
    
    
    
    
    
    
    157,103Inventory
    
    
    
    
    
    
    
    
    
    
    9,121
    
    
    
    2,132
    
    
    
    
    
    
    
    11,253Prepaid expenses and other assets
    
    
    
    
    
    
    188
    
    
    
    2,736
    
    
    
    478
    
    
    
    
    
    
    
    3,402Assets held for sale
    
    
    
    
    
    
    7,420
    
    
    
    
    
    
    
    6,033
    
    
    
    
    
    
    
    13,453Deferred income taxes, net
    
    
    
    
    
    
    350
    
    
    
    2,569
    
    
    
    4,991
    
    
    
    (2,569
    )
    
    
    5,341Total current assets
    
    
    5,650
    
    
    
    20,689
    
    
    
    94,095
    
    
    
    107,064
    
    
    
    (2,569
    )
    
    
    224,929Property and equipment, net
    
    
    
    
    
    
    1,084
    
    
    
    4,367
    
    
    
    5,015
    
    
    
    
    
    
    
    10,466Goodwill, net
    
    
    
    
    
    
    108
    
    
    
    116,302
    
    
    
    18,685
    
    
    
    
    
    
    
    135,095Investment in subsidiaries
    
    
    108,303
    
    
    
    
    
    
    
    22,009
    
    
    
    10,513
    
    
    
    (140,825
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    526
    
    
    
    
    
    
    
    2,092
    
    
    
    
    
    
    
    2,618Other assets
    
    
    5,767
    
    
    
    493
    
    
    
    3,032
    
    
    
    171
    
    
    
    
    
    
    
    9,463Deferred income taxes, net
    
    
    1,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,257
    )
    
    
    Total assets
    
    $
    120,977
    
    
    $
    22,900
    
    
    $
    239,805
    
    
    $
    143,540
    
    
    $
    (144,651
    )
    
    $
    382,571LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    590
    
    
    $
    
    
    
    $
    10,405
    
    
    $
    
    
    
    $
    10,995Accounts payable and drafts
    
    
    
    
    
    
    6,538
    
    
    
    62,594
    
    
    
    48,119
    
    
    
    
    
    
    
    117,251Accrued liabilities
    
    
    10,998
    
    
    
    3,985
    
    
    
    27,447
    
    
    
    23,661
    
    
    
    
    
    
    
    66,091Liabilities held for sale
    
    
    
    
    
    
    5,542
    
    
    
    
    
    
    
    4,591
    
    
    
    
    
    
    
    10,133Deferred income taxes, net
    
    
    2,569
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,569
    )
    
    
    Total current liabilities
    
    
    13,567
    
    
    
    16,655
    
    
    
    90,041
    
    
    
    86,776
    
    
    
    (2,569
    )
    
    
    204,470Long-term debt
    
    
    232,521
    
    
    
    16,758
    
    
    
    
    
    
    
    590
    
    
    
    
    
    
    
    249,869Intercompany accounts
    
    
    (32,961
    )
    
    
    (21,753
    )
    
    
    31,929
    
    
    
    22,785
    
    
    
    
    
    
    
    Long-term deferred compensation and
other liabilities
    
    
    
    
    
    
    378
    
    
    
    8,275
    
    
    
    10,713
    
    
    
    
    
    
    
    19,366Deferred income taxes, net
    
    
    
    
    
    
    349
    
    
    
    1,257
    
    
    
    667
    
    
    
    (1,257
    )
    
    
    1,016Total liabilities
    
    
    213,127
    
    
    
    12,387
    
    
    
    131,502
    
    
    
    121,531
    
    
    
    (3,826
    )
    
    
    474,721Redeemable Series A Preferred Stock
    
    
    91,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,312Shareholders equity (deficit)
    
    
    (183,462
    )
    
    
    10,513
    
    
    
    108,303
    
    
    
    22,009
    
    
    
    (140,825
    )
    
    
    (183,462
    )Total liabilities
and shareholders
equity (deficit)
    
    $
    120,977
    
    
    $
    22,900
    
    
    $
    239,805
    
    
    $
    143,540
    
    
    $
    (144,651
    )
    
    $
    382,571
 75




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##### Table of Contents



21. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
for the three fiscal years ended January 1, 2006
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Year Ended January 1, 2006Net sales
    
    $
    
    
    
    $
    25,208
    
    
    $
    299,539
    
    
    $
    110,286
    
    
    $
    (67
    )
    
    $
    434,966Cost of sales
    
    
    
    
    
    
    16,460
    
    
    
    261,253
    
    
    
    90,710
    
    
    
    (67
    )
    
    
    368,356Gross profit
    
    
    
    
    
    
    8,748
    
    
    
    38,286
    
    
    
    19,576
    
    
    
    
    
    
    
    66,610Selling, general and administrative expenses
    
    
    
    
    
    
    2,596
    
    
    
    21,335
    
    
    
    7,753
    
    
    
    
    
    
    
    31,684Amortization of goodwill and intangibles
    
    
    
    
    
    
    
    
    
    
    89,828
    
    
    
    
    
    
    
    
    
    
    
    89,828Restructuring and severance costs
    
    
    
    
    
    
    229
    
    
    
    1,792
    
    
    
    814
    
    
    
    
    
    
    
    2,835Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (704
    )
    
    
    
    
    
    
    (704
    )Income from continuing operations before
interest, income taxes, equity in affiliates
    
    
    
    
    
    
    5,923
    
    
    
    (74,669
    )
    
    
    11,713
    
    
    
    
    
    
    
    (57,033
    )Interest expense, net
    
    
    26,914
    
    
    
    3,110
    
    
    
    2,937
    
    
    
    914
    
    
    
    
    
    
    
    33,875Income (loss) from continuing operations
before income taxes, equity in affiliates
    
    
    (26,914
    )
    
    
    2,813
    
    
    
    (77,606
    )
    
    
    10,799
    
    
    
    
    
    
    
    (90,908
    )Income tax provision (benefit)
    
    
    (4,605
    )
    
    
    (2,000
    )
    
    
    4,244
    
    
    
    3,068
    
    
    
    
    
    
    
    707Equity in affiliates
    
    
    (69,306
    )
    
    
    
    
    
    
    12,544
    
    
    
    4,813
    
    
    
    51,949
    
    
    
    Income (loss) from continuing operations
    
    
    (91,615
    )
    
    
    4,813
    
    
    
    (69,306
    )
    
    
    12,544
    
    
    
    51,949
    
    
    
    (91,615
    )Income (loss) from discontinued operations, net
    
    
    (22,795
    )
    
    
    449
    
    
    
    (22,795
    )
    
    
    (23,920
    )
    
    
    46,266
    
    
    
    (22,795
    )Net income (loss)
    
    $
    (114,410
    )
    
    $
    5,262
    
    
    $
    (92,101
    )
    
    $
    (11,376
    )
    
    $
    98,215
    
    
    $
    (114,410
    )Fiscal Year Ended January 2, 2005 (As Restated)Net sales
    
    $
    
    
    
    $
    22,781
    
    
    $
    335,181
    
    
    $
    96,526
    
    
    $
    (183
    )
    
    $
    454,305Cost of sales
    
    
    
    
    
    
    16,536
    
    
    
    291,797
    
    
    
    76,972
    
    
    
    (183
    )
    
    
    385,122Gross profit
    
    
    
    
    
    
    6,245
    
    
    
    43,384
    
    
    
    19,554
    
    
    
    
    
    
    
    69,183Selling, general and administrative expenses
    
    
    
    
    
    
    3,490
    
    
    
    26,646
    
    
    
    5,214
    
    
    
    
    
    
    
    35,350Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    209Income from continuing operations
before interest, income taxes, and
equity in affiliates
    
    
    
    
    
    
    2,755
    
    
    
    16,529
    
    
    
    14,340
    
    
    
    
    
    
    
    33,624Interest expense, net
    
    
    25,267
    
    
    
    697
    
    
    
    4,374
    
    
    
    403
    
    
    
    
    
    
    
    30,741Income (loss) from continuing operations
before income taxes, and equity in affiliates
    
    
    (25,267
    )
    
    
    2,058
    
    
    
    12,155
    
    
    
    13,937
    
    
    
    
    
    
    
    2,883Income tax provision (benefit)
    
    
    (5,135
    )
    
    
    (143
    )
    
    
    4,677
    
    
    
    2,377
    
    
    
    
    
    
    
    1,776Equity in affiliates
    
    
    21,239
    
    
    
    
    
    
    
    13,761
    
    
    
    2,201
    
    
    
    (37,201
    )
    
    
    Income from continuing operations
    
    
    1,107
    
    
    
    2,201
    
    
    
    21,239
    
    
    
    13,761
    
    
    
    (37,201
    )
    
    
    1,107Income (loss) from discontinued operations
    
    
    550
    
    
    
    934
    
    
    
    550
    
    
    
    (21
    )
    
    
    (1,463
    )
    
    
    550Net income (loss)
    
    $
    1,657
    
    
    $
    3,135
    
    
    $
    21,789
    
    
    $
    13,740
    
    
    $
    (38,664
    )
    
    $
    1,657
 76




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##### Table of Contents



21. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
for the three fiscal years ended January 1, 2006
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Year Ended December 28, 2003 (As
Restated)Net sales
    
    $
    
    
    
    $
    21,947
    
    
    $
    400,532
    
    
    $
    89,368
    
    
    $
    (7,944
    )
    
    $
    503,903Cost of sales
    
    
    
    
    
    
    15,730
    
    
    
    348,753
    
    
    
    73,094
    
    
    
    (7,944
    )
    
    
    429,633Gross profit
    
    
    
    
    
    
    6,217
    
    
    
    51,779
    
    
    
    16,274
    
    
    
    
    
    
    
    74,270Selling, general and administrative expenses
    
    
    
    
    
    
    4,614
    
    
    
    32,692
    
    
    
    11,005
    
    
    
    
    
    
    
    48,311Restructuring and severance costs
    
    
    
    
    
    
    782
    
    
    
    16,136
    
    
    
    2,347
    
    
    
    
    
    
    
    19,265Loss on asset impairment and sale
    
    
    
    
    
    
    546
    
    
    
    
    
    
    
    1,106
    
    
    
    
    
    
    
    1,652Income (loss) from
continuing operations
before interest, income taxes, and equity
in affiliates
    
    
    
    
    
    
    275
    
    
    
    2,951
    
    
    
    1,816
    
    
    
    
    
    
    
    5,042Interest expense (income), net
    
    
    22,271
    
    
    
    (747
    )
    
    
    7,052
    
    
    
    (58
    )
    
    
    
    
    
    
    28,518Income (loss) from
continuing operations
before income taxes, and equity in affiliates
    
    
    (22,271
    )
    
    
    1,022
    
    
    
    (4,101
    )
    
    
    1,874
    
    
    
    
    
    
    
    (23,476
    )Income tax provision (benefit)
    
    
    14,109
    
    
    
    (80
    )
    
    
    (528
    )
    
    
    3,803
    
    
    
    
    
    
    
    17,304Equity in affiliates
    
    
    (4,360
    )
    
    
    
    
    
    
    (476
    )
    
    
    (10,399
    )
    
    
    15,275
    
    
    
    40Income (loss) from
continuing operations
    
    
    (40,740
    )
    
    
    1,102
    
    
    
    (4,049
    )
    
    
    (12,328
    )
    
    
    15,275
    
    
    
    (40,740
    )Loss from discontinued
operations, net
    
    
    (26,038
    )
    
    
    (11,501
    )
    
    
    (26,038
    )
    
    
    (14,697
    )
    
    
    52,236
    
    
    
    (26,038
    )Net loss
    
    $
    (66,778
    )
    
    $
    (10,399
    )
    
    $
    (30,087
    )
    
    $
    (27,025
    )
    
    $
    67,511
    
    
    $
    (66,778
    )
 77




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##### Table of Contents



21. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal year ended January 1, 2006
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (114,410
    )
    
    $
    5,262
    
    
    $
    (92,101
    )
    
    $
    (11,376
    )
    
    $
    98,215
    
    
    $
    (114,410
    )Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:Equity in affiliates
    
    
    92,101
    
    
    
    
    
    
    
    11,376
    
    
    
    (5,262
    )
    
    
    (98,215
    )
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    (578
    )
    
    
    
    
    
    
    4,578
    
    
    
    
    
    
    
    4,000Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (704
    )
    
    
    
    
    
    
    (704
    )Depreciation
    
    
    
    
    
    
    612
    
    
    
    2,924
    
    
    
    1,410
    
    
    
    
    
    
    
    4,946Goodwill impairment charges
    
    
    
    
    
    
    
    
    
    
    89,827
    
    
    
    16,868
    
    
    
    
    
    
    
    106,695Amortization of debt issuance costs
    
    
    4,191
    
    
    
    437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,628Deferred taxes
    
    
    (835
    )
    
    
    (2,304
    )
    
    
    835
    
    
    
    (275
    )
    
    
    
    
    
    
    (2,579
    )(Gain) loss on sale/disposal of property
and investments
    
    
    
    
    
    
    (1
    )
    
    
    (23
    )
    
    
    213
    
    
    
    
    
    
    
    189(Increase) decrease in receivable, net
    
    
    
    
    
    
    1,655
    
    
    
    11,066
    
    
    
    22,926
    
    
    
    
    
    
    
    35,647(Increase) decrease in inventory
    
    
    
    
    
    
    
    
    
    
    3,339
    
    
    
    472
    
    
    
    
    
    
    
    3,811(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (266
    )
    
    
    537
    
    
    
    (609
    )
    
    
    
    
    
    
    (338
    )Increase (decrease) in current liabilities
    
    
    499
    
    
    
    481
    
    
    
    (16,848
    )
    
    
    (14,374
    )
    
    
    
    
    
    
    (30,242
    )Other, net
    
    
    
    
    
    
    (390
    )
    
    
    (910
    )
    
    
    (2,608
    )
    
    
    
    
    
    
    (3,908
    )Net cash provided by (used for) operating activities
    
    
    (18,454
    )
    
    
    4,908
    
    
    
    10,022
    
    
    
    11,259
    
    
    
    
    
    
    
    7,735Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (190
    )
    
    
    (1,123
    )
    
    
    (3,735
    )
    
    
    
    
    
    
    (5,048
    )Payments for contingent consideration and
minority interests
    
    
    
    
    
    
    
    
    
    
    (2,417
    )
    
    
    
    
    
    
    
    
    
    
    (2,417
    )Proceeds from sale/disposal of businesses, net
of expenses paid
    
    
    
    
    
    
    5,608
    
    
    
    
    
    
    
    (520
    )
    
    
    
    
    
    
    5,088Proceeds from sale/disposal of equipment and
investments
    
    
    
    
    
    
    10
    
    
    
    55
    
    
    
    162
    
    
    
    
    
    
    
    227Net cash provided by (used for) investing activities
    
    
    
    
    
    
    5,428
    
    
    
    (3,485
    )
    
    
    (4,093
    )
    
    
    
    
    
    
    (2,150
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    24,831
    
    
    
    (1,144
    )
    
    
    (14,838
    )
    
    
    (8,849
    )
    
    
    
    
    
    
    Repayment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,901
    )
    
    
    
    
    
    
    (1,901
    )Debt issuance costs
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Changes in revolving debt, net
    
    
    
    
    
    
    (579
    )
    
    
    
    
    
    
    (7,306
    )
    
    
    
    
    
    
    (7,885
    )Changes in book overdrafts, net
    
    
    
    
    
    
    
    
    
    
    (2,837
    )
    
    
    375
    
    
    
    
    
    
    
    (2,462
    )Net cash provided by (used for) financing activities
    
    
    24,799
    
    
    
    (1,723
    )
    
    
    (17,675
    )
    
    
    (17,681
    )
    
    
    
    
    
    
    (12,280
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    (1,651
    )
    
    
    
    
    
    
    1,979
    
    
    
    
    
    
    
    328Cash and cash equivalents:Increase (decrease) for the period
    
    
    6,345
    
    
    
    6,962
    
    
    
    (11,138
    )
    
    
    (8,536
    )
    
    
    
    
    
    
    (6,367
    )Balance, beginning of period
    
    
    5,650
    
    
    
    18
    
    
    
    11,570
    
    
    
    17,139
    
    
    
    
    
    
    
    34,377Balance, end of period (including $273 of cash held for sale)
    
    $
    11,995
    
    
    $
    6,980
    
    
    $
    432
    
    
    $
    8,603
    
    
    $
    
    
    
    $
    28,010
 78




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##### Table of Contents



21. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal year ended January 2, 2005 (As Restated)
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income
    
    $
    1,657
    
    
    $
    3,135
    
    
    $
    21,789
    
    
    $
    13,740
    
    
    $
    (38,664
    )
    
    $
    1,657Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:Equity in affiliates
    
    
    (21,789
    )
    
    
    
    
    
    
    (13,740
    )
    
    
    (3,135
    )
    
    
    38,664
    
    
    
    Depreciation
    
    
    
    
    
    
    1,465
    
    
    
    4,222
    
    
    
    2,856
    
    
    
    
    
    
    
    8,543Amortization of debt issuance costs
    
    
    4,040
    
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,345Deferred taxes
    
    
    (4,067
    )
    
    
    
    
    
    
    4,067
    
    
    
    953
    
    
    
    
    
    
    
    953(Gain) loss on sale/disposal of property
and investments
    
    
    
    
    
    
    (87
    )
    
    
    20
    
    
    
    128
    
    
    
    
    
    
    
    61(Increase) decrease in receivable, net
    
    
    
    
    
    
    4,495
    
    
    
    27,055
    
    
    
    16,864
    
    
    
    
    
    
    
    48,414(Increase) decrease in inventory
    
    
    
    
    
    
    
    
    
    
    (3,487
    )
    
    
    (56
    )
    
    
    
    
    
    
    (3,543
    )(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (225
    )
    
    
    1,414
    
    
    
    313
    
    
    
    
    
    
    
    1,502Increase (decrease) in current
liabilities
    
    
    1,574
    
    
    
    (12,176
    )
    
    
    (23,127
    )
    
    
    (15,126
    )
    
    
    
    
    
    
    (48,855
    )Other, net
    
    
    
    
    
    
    121
    
    
    
    939
    
    
    
    1,374
    
    
    
    
    
    
    
    2,434Net cash provided by (used for) operating activities
    
    
    (18,585
    )
    
    
    (2,967
    )
    
    
    19,152
    
    
    
    17,911
    
    
    
    
    
    
    
    15,511Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (346
    )
    
    
    (512
    )
    
    
    (1,865
    )
    
    
    
    
    
    
    (2,723
    )Payments for contingent consideration and
minority interests
    
    
    
    
    
    
    
    
    
    
    (4,000
    )
    
    
    (354
    )
    
    
    
    
    
    
    (4,354
    )Proceeds from sale/disposal of equipment and
investments
    
    
    
    
    
    
    108
    
    
    
    46
    
    
    
    170
    
    
    
    
    
    
    
    324Other, net
    
    
    
    
    
    
    
    
    
    
    2,269
    
    
    
    
    
    
    
    
    
    
    
    2,269Net cash used for investing activities
    
    
    
    
    
    
    (238
    )
    
    
    (2,197
    )
    
    
    (2,049
    )
    
    
    
    
    
    
    (4,484
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    6,117
    
    
    
    (2,793
    )
    
    
    4,945
    
    
    
    (8,269
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (482
    )
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (419
    )Changes in revolving debt, net
    
    
    
    
    
    
    608
    
    
    
    
    
    
    
    (2,229
    )
    
    
    
    
    
    
    (1,621
    )Changes in book overdrafts, net
    
    
    
    
    
    
    
    
    
    
    (10,721
    )
    
    
    
    
    
    
    
    
    
    
    (10,721
    )Net cash provided by (used for) financing activities
    
    
    5,635
    
    
    
    (2,122
    )
    
    
    (5,776
    )
    
    
    (10,498
    )
    
    
    
    
    
    
    (12,761
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    (292
    )
    
    
    
    
    
    
    (247
    )
    
    
    
    
    
    
    (539
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    (12,950
    )
    
    
    (5,619
    )
    
    
    11,179
    
    
    
    5,117
    
    
    
    
    
    
    
    (2,273
    )Balance, beginning of period
    
    
    18,600
    
    
    
    5,639
    
    
    
    391
    
    
    
    12,020
    
    
    
    
    
    
    
    36,650Balance, end of period
    
    $
    5,650
    
    
    $
    20
    
    
    $
    11,570
    
    
    $
    17,137
    
    
    $
    
    
    
    $
    34,377
 79




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##### Table of Contents



21. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:  (continued)
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal year ended December 28, 2003
(As Restated)
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net loss
    
    $
    (66,778
    )
    
    $
    (10,399
    )
    
    $
    (30,087
    )
    
    $
    (27,025
    )
    
    $
    67,511
    
    
    $
    (66,778
    )Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:Loss on asset impairment and sale
    
    
    
    
    
    
    787
    
    
    
    
    
    
    
    1,106
    
    
    
    
    
    
    
    1,893Minority interests and equity in affiliates
    
    
    30,087
    
    
    
    
    
    
    
    26,984
    
    
    
    10,220
    
    
    
    (67,510
    )
    
    
    (219
    )Depreciation
    
    
    
    
    
    
    4,039
    
    
    
    14,961
    
    
    
    6,523
    
    
    
    
    
    
    
    25,523Amortization of debt issuance costs
    
    
    6,055
    
    
    
    111
    
    
    
    
    
    
    
    408
    
    
    
    
    
    
    
    6,574Deferred taxes
    
    
    10,050
    
    
    
    (1,033
    )
    
    
    2,822
    
    
    
    2,260
    
    
    
    
    
    
    
    14,099Loss on sale/disposal of property and equipment
    
    
    
    
    
    
    448
    
    
    
    126
    
    
    
    127
    
    
    
    
    
    
    
    701(Increase) decrease in receivable, net
    
    
    181
    
    
    
    6,007
    
    
    
    15,645
    
    
    
    (28,104
    )
    
    
    
    
    
    
    (6,271
    )(Increase) decrease in inventory
    
    
    
    
    
    
    20
    
    
    
    (2,229
    )
    
    
    (676
    )
    
    
    
    
    
    
    (2,885
    )(Increase) decrease in prepaid expenses and other
assets
    
    
    7
    
    
    
    712
    
    
    
    (652
    )
    
    
    941
    
    
    
    
    
    
    
    1,008Increase (decrease) in current liabilities
    
    
    6,139
    
    
    
    9,807
    
    
    
    2,755
    
    
    
    21,282
    
    
    
    
    
    
    
    39,983Other, net
    
    
    323
    
    
    
    156
    
    
    
    (1,121
    )
    
    
    1,440
    
    
    
    (312
    )
    
    
    486Net cash provided by (used for) operating activities
    
    
    (13,936
    )
    
    
    10,655
    
    
    
    29,204
    
    
    
    (11,498
    )
    
    
    (311
    )
    
    
    14,114Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (648
    )
    
    
    (2,560
    )
    
    
    (1,621
    )
    
    
    
    
    
    
    (4,829
    )Proceeds from sale/disposal of equipment and investments
    
    
    
    
    
    
    540
    
    
    
    548
    
    
    
    1,064
    
    
    
    
    
    
    
    2,152Other, net
    
    
    
    
    
    
    
    
    
    
    (228
    )
    
    
    (1
    )
    
    
    
    
    
    
    (229
    )Net cash used for investing activities
    
    
    
    
    
    
    (108
    )
    
    
    (2,240
    )
    
    
    (558
    )
    
    
    
    
    
    
    (2,906
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    32,601
    
    
    
    (19,588
    )
    
    
    (22,239
    )
    
    
    8,894
    
    
    
    332
    
    
    
    Proceeds from issuance of debt
    
    
    83,482
    
    
    
    16,372
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,854Repayment of debt
    
    
    (65,798
    )
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (65,808
    )Debt issuance costs
    
    
    (5,881
    )
    
    
    (545
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,426
    )Changes in revolving debt, net
    
    
    (11,868
    )
    
    
    (428
    )
    
    
    
    
    
    
    2,386
    
    
    
    
    
    
    
    (9,910
    )Changes in book overdrafts, net
    
    
    
    
    
    
    
    
    
    
    (4,478
    )
    
    
    (52
    )
    
    
    
    
    
    
    (4,530
    )Net cash provided by (used for) financing activities
    
    
    32,536
    
    
    
    (4,189
    )
    
    
    (26,727
    )
    
    
    11,228
    
    
    
    332
    
    
    
    13,180Effect of foreign exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    (835
    )
    
    
    
    
    
    
    2,183
    
    
    
    (21
    )
    
    
    1,327Cash and cash equivalents:Increase for the period
    
    
    18,600
    
    
    
    5,523
    
    
    
    237
    
    
    
    1,355
    
    
    
    
    
    
    
    25,715Balance, beginning of period
    
    
    
    
    
    
    116
    
    
    
    154
    
    
    
    10,665
    
    
    
    
    
    
    
    10,935Balance, end of period
    
    $
    18,600
    
    
    $
    5,639
    
    
    $
    391
    
    
    $
    12,020
    
    
    $
    
    
    
    $
    36,650
 80




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
   
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedure:
   Material Weaknesses in Internal Control over Financial Reporting:
  
    
    The Company did not maintain an effective control environment over the financial
reporting and general ledger processes due primarily to limitations in the capacity of
the accounting and other departments. Limitations are believed to be caused by
voluntary and involuntary staff turnover resulting from downsizing of operations and
related support functions. These limitations, in addition to other factors resulted in
weaknesses identified for (1) Authorization of Journal Entries multiple individuals
have the ability to initiate and record journal entries into the general ledger without
prior review or approval. Reviews of such journal entries are not done on a regular
basis. Formal policies and procedures for authorization and/or review of posted
journal entries are not developed or implemented (2) Financial Reporting and Oversight
The financial statements of Satiz S.r.l. for 2003 and 2004 were not correct primarily
as a result of unsubstantiated amounts recorded as unbilled accounts receivable. In
addition, the financial statements of other subsidiaries for 2004 were not correct as a
result of misstated pension and other liabilities. These errors caused the financial
statements of the Company for 2003 and 2004 to be restated. These restatements are an
indication that the controls over financial reporting are not adequate and (3)
Segregation of Duties The Company does not maintain adequate segregation of duties
over certain general ledger activities or maintain adequate monitoring controls in such
areas.
    
    Employees within certain departments have access rights within the accounting system
that are incompatible with their assigned roles. Appropriate controls are not in place
to provide assurance over the information technology process such as review of security
event logs and activity reports.
  81




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##### Table of Contents



Plan for Remediation of Material Weaknesses in Internal Control over Financial Reporting:
  
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  Name
    
    Age
    
    PositionRobert Netolicka
    
    
    58
    
    
    President and Chief Executive OfficerFrederick K. Minturn
    
    
    49
    
    
    Executive Vice President and Chief Financial OfficerErwin H. Billig
    
    
    79
    
    
    Chairman and DirectorDavid E. Cole
    
    
    68
    
    
    DirectorCharles E. Corpening
    
    
    40
    
    
    DirectorMichael A. Delaney
    
    
    51
    
    
    DirectorRichard J. Puricelli
    
    
    68
    
    
    DirectorThomas T. Stallkamp
    
    
    59
    
    
    DirectorWolfgang Kurth
    
    
    64
    
    
    Senior Vice PresidentPark Payne
    
    
    53
    
    
    Senior Vice President
 Robert Netolicka
 Frederick K. Minturn
 Erwin H. Billig
 David E. Cole
 82




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##### Table of Contents



Charles E. Corpening
 Michael A. Delaney
 Richard J. Puricelli
 Thomas T. Stallkamp
 Wolfgang Kurth
 Park Payne
  Audit Committee Financial Expert
  83




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##### Table of Contents



Code of Business Conduct and Ethics
  84




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##### Table of Contents



Item 11. Executive Compensation.
 Summary of Cash and Certain Other Compensation
  Summary Compensation Table
 Long-termAnnual Compensation
    
    CompensationFiscal
    
    
    
    
    
    
    
    
    
    Other
    
    SecuritiesYear
    
    Salary
    
    Bonus
    
    Compensation
    
    UnderlyingName and Principal Position
    
    Ended
    
    ($)
    
    ($)
    
    ($)
    
    Options (#)Robert Netolicka (3)
    
    
    01/01/06
    
    
    
    700,000
    
    
    
    783,300
    
    
    
    101,339
    (4)
    
    
    President
and Chief Executive Officer
    
    
    01/02/05
    
    
    
    500,000
    
    
    
    645,000
    
    
    
    75,272
    (4)
    
    
    12/28/03
    
    
    
    233,333
    
    
    
    
    
    
    
    18,593
    (4)
    
    
    15,000Frederick K. Minturn
    
    
    01/01/06
    
    
    
    342,400
    
    
    
    285,345
    
    
    
    4,521
    (2)
    
    
    Executive Vice President and Chief
    
    
    01/02/05
    
    
    
    340,000
    
    
    
    438,600
    
    
    
    63,212
    (2)
    
    
    2,500Financial Officer
    
    
    12/28/03
    
    
    
    310,080
    
    
    
    
    
    
    
    54,275
    (2)
    
    
    Thomas T. Stallkamp (3)
    
    
    01/01/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    01/02/05
    
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    12/28/03
    
    
    
    350,000
    
    
    
    196,005
    
    
    
    
    
    
    
    Park Payne (3)
    
    
    01/01/06
    
    
    
    280,000
    
    
    
    38,640
    
    
    
    689
    (1)
    
    
    Senior Vice President
    
    
    01/02/05
    
    
    
    280,000
    
    
    
    361,200
    
    
    
    437
    (1)
    
    
    12/28/03
    
    
    
    265,000
    
    
    
    
    
    
    
    13,441
    (1)
    
    
    2,125Wolfgang Kurth
    
    
    01/01/06
    
    
    
    319,788
    
    
    
    285,043
    
    
    
    
    
    
    
    Senior Vice President
    
    
    01/02/05
    
    
    
    355,275
    
    
    
    474,733
    
    
    
    
    
    
    
    12/28/03
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    2,125
 
 (1)
    
    Company match, including interest, of amounts of employee salary deferrals pursuant to our Deferred Compensation Plan, including interest earned.(2)
    
    Company match, including interest, of amounts of employee salary deferrals pursuant to our Deferred Compensation Plan totaling $4,521 and $2,869
during 2005 and 2004, respectively, combined with the value on the date of vesting of shares of common stock of MascoTech granted pursuant to MascoTechs
1991 Stock Incentive Plan, being compensation for services prior to 1997.(3)
    
    Robert Netolicka and Park Payne commenced their employment with MSX International, Inc in June 2003 and November 2002, respectively. Effective
December 2003, Thomas Stallkamp became Chairman of the Board of Directors and Erwin Billig vacated his position as Chairman of the Board of Directors, but
continued as a Director. Effective July 27, 2004, Erwin Billig became Chairman of the Board of Directors and Thomas T. Stallkamp vacated his position as
Chairman of the Board of Directors, but continued as a Director.(4)
    
    Relocation and living expenses paid on behalf of Robert Netolicka. 85




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##### Table of Contents



Director Compensation
  Employment Agreements
 Robert Netolicka
 Frederick K. Minturn
 Compensation Committee Interlocks and Insider Participation
  86




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management.
  Number of SharesBeneficially Owned
    
    Percent of ClassClass
    
    Series A
    
    Class
    
    Series AA
    
    Preferred
    
    A
    
    PreferredName of Beneficial Owner
    
    Common
    
    Stock
    
    Common
    
    StockCiticorp and affiliates
    
    
    381,944
    *
    
    
    316,894
    
    
    
    74.6
    %
    
    
    88.2
    %399 Park Avenue, 14th Floor
New York, New York 10043Erwin H. Billig (1)
    
    
    25,838
    (2)
    
    
    690
    
    
    
    5.0
    %
    
    
    0.2
    %1950 Concept Drive
Warren, MI 48091Charles E. Corpening
    
    
    182
    
    
    
    57
    
    
    
    
    
    
    
    399 Park Avenue, 14th Floor
New York, New York 10043Michael A. Delaney
    
    
    7,547
    
    
    
    3,200
    
    
    
    1.5
    %
    
    
    0.9
    %399 Park Avenue, 14th Floor
New York, New York 10043Thomas T. Stallkamp
    
    
    6,906
    (3)
    
    
    1,035
    
    
    
    1.3
    %
    
    
    0.3
    %28333 Telegraph Road
Southfield, MI 48034Robert Netolicka
    
    
    6,000
    (5)
    
    
    
    
    
    
    1.2
    %
    
    
    1950 Concept Drive
Warren, MI 48091Frederick K. Minturn
    
    
    8,584
    (4)
    
    
    69
    
    
    
    1.7
    %
    
    
    1950 Concept Drive
Warren, MI 48091Wolfgang Kurth
    
    
    1,075
    (6)
    
    
    
    
    
    
    0.2
    %
    
    
    1950 Concept Drive
Warren, MI 48091Park Payne
    
    
    1,075
    (7)
    
    
    
    
    
    
    0.2
    %
    
    
    1950 Concept Drive
Warren, MI 48091All directors and executive officers
    
    
    55,057
    *
    
    
    5,051
    
    
    
    10.8
    %
    
    
    1.4
    %as a group (6 persons)
 
 *
    
    Consists of an equal number of shares of each of
Series A-1 Common Stock, Series A-2 Common Stock, Series A-3 Common Stock and Series A-4 Common
Stock (collectively, the Class A Common Stock).(1)
    
    In name of Billig Family Limited Partnership(2)
    
    Includes options exercisable for 10,000 shares of Class A Common Stock within 60 days of March 31, 2006.(3)
    
    Includes options exercisable for 5,650 shares of Class A Common Stock within 60 days of March 31, 2006.(4)
    
    Includes options exercisable for 1,000 shares of Class A Common Stock within 60 days of March 31, 2006.(5)
    
    Includes options exercisable for 6,000 shares of Class A Common Stock within 60 days of March 31, 2006.(6)
    
    Includes options exercisable for 1,075 shares of Class A Common Stock within 60 days of March 31, 2006.(7)
    
    Includes options exercisable for 1,075 shares of Class A Common Stock within 60 days of March 31, 2006. 88




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##### Table of Contents



Equity Compensation Plan InformationNumber of securitiesremaining available forfuture issuance underNumber of securities to be
    
    
    Weighted-average exercise
    
    
    equity compensationissued upon exercise of
    
    
    price of outstanding
    
    
    plans (excludingoutstanding options, warrants
    
    
    options, warrants and
    
    
    securities reflected inPlan category
    
    and rights
    
    
    rights
    
    
    column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by security
holders
    
    
    39,650
    
    
    $
    64.04
    
    
    
    10,350Equity compensation plans not approved by security
holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    39,650
    
    
    $
    64.04
    
    
    
    10,350
  
 Item 13. Certain Relationships and Related Transactions.
 Amended and Restated Stockholders Agreement
   89




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##### Table of Contents



Amended and Restated Registration Rights Agreement
   Mezzanine Term Notes
   90




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##### Table of Contents



Fourth Lien Term Notes
  Note Purchases
  
 Item 14. Principal Accountant Fees and Services.
 Audit Fees
    Audit Related Fees
  91




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##### Table of Contents



Tax Fees
   All Other Fees
   Auditor Independence
      92




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedule.
 (a)
    
    Listing of Documents.
 Financial Statements.
 
 (1)
    
    Financial Statement Schedule.
   (2)
    
    Exhibits.
 3.1
    
    
    Amended and Restated Certificate of Incorporation of MSXI. (6)3.2
    
    
    Amended and Restated By-laws of MSXI. (7)3.3
    
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of MSXI. (10)4.1
    
    
    Indenture dated as of January 15, 1998 by and between MSXI, the Subsidiary
Guarantors and IBJ Schroder Bank & Trust Company, as trustee, in respect of the
11-3/8% Senior Subordinated Notes due 2008. (1)4.2
    
    
    Form of Exchange Notes. (1)4.3
    
    
    Registration Agreement dated as of January 16, 1998 by and among
MSXI, the Subsidiary Guarantors and Salomon Brothers Inc, Lehman Brothers Inc.
and First Chicago Capital Markets, Inc. (1)4.4
    
    
    Indenture dated as of August 1, 2003, between MSX International,
Inc., MSX International Limited, the Subsidiary Guarantors and BNY Midwest Trust
Company, as trustee, in respect of the Units consisting of $860 Principal Amount
of 11% Senior Secured Notes Due 2007 of MSX International, Inc. and $140
Principal Amount of 11% Senior Secured Notes Due 2007 of MSX International
Limited. (8)4.5
    
    
    Form of New Units consisting of $860 Principal Amount of 11%
Senior Secured Notes Due 2007 of MSX International, Inc. and $140 Principal
Amount of 11% Senior Secured Notes Due 2007 of MSX International Limited. (8)4.6
    
    
    Form of New Notes consisting of $860 Principal Amount of 11%
Senior Secured Notes Due 2007 of MSX International, Inc. (included in Exhibit
4.5). (8)4.7
    
    
    Form of New Notes consisting of $860 Principal Amount of 11%
Senior Secured Notes Due 2007 of MSX International Limited (included in Exhibit
4.5). (8)4.8
    
    
    Registration Agreement dated as of August 1, 2003 by and among
MSX International, Inc., MSX International Limited, the Guarantors and Jeffries
& Company, Inc. (8)4.9
    
    
    Supplemental Indenture to Indenture dated as of August 1, 2003,
dated as of January 19, 2006, among MSX International, Inc, MSX International
Limited, Creative Technology Services, L.L.C. and BNY Midwest Trust Company.
(15)4.10
    
    
    Supplemental Indenture to Indenture January 15, 1998, dated as of
January 19, 2006, among MSX International, Inc, MSX International Limited,
Creative Technology Services, L.L.C. and BNY Midwest Trust Company (successor to
IBJ Schroder Bank & Trust Company). (15)10.1
    
    
    Amended and Restated Stockholders Agreement. (6)
 93




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##### Table of Contents



10.2
    
    
    Amended and Restated Registration Rights Agreement. (6)10.3
    
    
    CVC Subscription Agreement dated as of January 3, 1997 between MSXI and CVC. (1)10.4
    
    
    Management Subscription Agreement dated as of January 3, 1997
between MSXI and certain executive officers of MSXI. (1)10.5
    
    
    Deferred Compensation Plan. (1)10.6
    
    
    MSX International, Inc. 2000 Stock Option Plan. (6)10.7
    
    
    Employment Agreement dated as of January 3, 1997 between MSXI and
Frederick K. Minturn. (1)10.8
    
    
    Stock Purchase Agreement dated as of July 25, 1997 between MSX
International (Holdings), Inc. and Ford Motor Company. (1)10.9
    
    
    Acquisition Agreement dated as of November 12, 1996 among MSXI,
MascoTech and ASG Holdings Inc. (1)10.10
    
    
    Asset Purchase Agreement dated as of October 23, 1998, between MSX
International Engineering Services, Inc. and Lexstra International, Inc. and
Lexus Temporaries, Inc. (2)10.11
    
    
    Stock Purchase Agreement dated as of December 22, 1998 between MSX
Engineering Services, Inc. and MegaTech Engineering, Inc. (3)10.12
    
    
    Stock Purchase Agreement dated as of September 17, 1999 between
MSX Engineering Services, Inc. and Chelsea Computer Consultants, Inc. (4)10.13
    
    
    Amended and Restated Credit Agreement dated as of August 1, 2003
between MSX International, Inc., the Borrowing Subsidiaries, and Bank One, NA.
(8)10.14
    
    
    Stock Purchase Agreement dated as of August 6, 1999 between MSX
International Holding Ltd. and Satiz S.p.A. (5)10.15
    
    
    Amended and Restated Fourth Secured Term Loan Agreement dated as
of August 1, 2003, by and among MSX International, Inc., MSX International
Limited and Court Square Capital Limited. (8)10.16
    
    
    Severance Agreement dated March 29, 2005, between MSXI and Robert
Netolicka. (12)10.17
    
    
    Third Secured Term Loan Agreement dated as of August 1, 2003, by
and among MSX International, Inc. and Citicorp Mezzanine III, L.P. (8)10.18
    
    
    Warrant Purchase Agreement dated as of August 1, 2003, by and
between MSX International, Inc. and Citicorp Mezzanine III, L.P. (8)10.19
    
    
    Purchase Agreement dated as of July 25, 2003, by and among MSX
International, Inc., MSX International Limited and Jeffries & Company, Inc. (8)10.20
    
    
    Amendment No. 1 to Purchase Agreement dated as of August 1, 2003,
by and among MSX International, Inc., MSX International Limited and Jeffries &
Company, Inc. (8)10.21
    
    
    Amendment No. 1 to Amended and Restated Stockholders Agreement
dated as of January 31, 2003. (8)10.22
    
    
    Amendment No. 2 to Amended and Restated Stockholders Agreement
dated as of August 1, 2003. (8)10.23
    
    
    Amendment No. 1 to Amended and Restated Registration Rights
Agreement dated as of August 1, 2003. (8)10.24
    
    
    Intercreditor Agreement, dated as of August 1, 2003, among Court
Square Capital Limited, Citicorp Mezzanine III, L.P., BNY Midwest Trust Company
and Bank One, NA. (13)10.25
    
    
    Summary of the Collective Dismissal Agreement dated January 15,
2005 between Satiz Srl and the Trade Union Organizations. (13)10.26
    
    
    Business Sale Agreement dated July 1, 2005 among MSX International
Limited, Arrk Technical Services Limited, MSX International, Inc. and Arrk
Product Development Group Limited. (14)10.27
    
    
    English translation of the Purchase and Sale Agreement dated June
10, 2005. (14)10.28
    
    
    Supplemental Agreement to Third Secured Term Loan Agreement dated
as of August 1, 2003, dated as of January 19, 2006, among MSX International, Inc,
MSX International Limited, Creative Technology Services, L.L.C. and Citicorp
Mezzanine III, L.P. (15)10.29
    
    
    First Amendment to Amended and Restated Credit Agreement, dated as
of February 24, 2004, among MSX International, Inc., the other Loan Parties, the
Lenders and Bank One, NA. (14)10.30
    
    
    Second Amendment to Amended and Restated Credit Agreement, dated
as of June 30, 2005, among MSX International, Inc., the other Loan Parties, the
Lenders and JPMorgan Chase Bank, N.A. (14)10.31
    
    
    Third Amendment to Amended and Restated Credit Agreement, dated as
of January 19, 2006, among MSX International, Inc., the other Loan Parties, the
Lenders and JPMorgan Chase Bank, N.A. (15)
 94




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##### Table of Contents



10.32
    
    
    Fourth Amendment to Amended and Restated Credit Agreement, dated
as of March 3, 2006, among MSX International, Inc., the other Loan Parties, the
Lenders and JPMorgan Chase Bank, N.A. (16)10.33
    
    
    Fifth Amendment to Amended and Restated Credit Agreement, dated as
of March 15, 2006, among MSX International, Inc., the other Loan Parties, the
Lenders and JPMorgan Chase Bank, N.A. (17)10.34
    
    
    Executive Incentive Compensation Plan. (12)10.35
    
    
    Management Performance Bonus Plan. (12)12.1
    
    
    Statement re: Computation of Ratio of Earnings to Fixed Charges.14.1
    
    
    Business Code of Conduct and Ethics (9)16.1
    
    
    Letter of PricewaterhouseCoopers LLP to the Securities and Exchange
Commission dated November 19, 2004. (11)21.1
    
    
    Subsidiaries of MSXI.31.1.1
    
    
    Certification by the Executive Vice President and Chief Financial Officer
pursuant to Rules 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31.1.2
    
    
    Certification by the President and Chief Executive Officer pursuant to Rules
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32.1
    
    
    Certification pursuant 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of Sarbanes-Oxley Act of 200299.1
    
    
    Press Release dated April 17,
2006
 
 (1)
    
    Incorporated by reference to the Exhibits filed with MSX Internationals
Registration Statement on Form S-4 (File No. 333-48279) filed July 21, 1998
(Amendment No. 3).(2)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Quarterly Report on Form 10-Q filed November 12, 1998.(3)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Current Report on Form 8-K filed June 30, 1999.(4)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Current Report on Form 8-K filed October 26, 1999.(5)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Current Report on Form 8-K filed March 14, 2000.(6)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Annual Report on Form 10-K filed March 9, 2001.(7)
    
    Incorporated by reference to Exhibits filed with MSX
Internationals Annual Report on Form 10-K filed March 8, 2002.(8)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Registration Statement of Form S-4 (File No. 333-109308) filed
September 30, 2003.(9)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Annual Report on Form 10-K filed March 19, 2004.(10)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Quarterly Report on Form 10-Q filed May 7, 2004.(11)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Current Report on Form 8-K filed November 19, 2004.(12)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Annual Report on Form 10-K filed April 1, 2005.(13)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Current Report on Form 8-K filed May 18, 2005.(14)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Current Report on Form 8-K filed July 8, 2005.(15)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Current Report on Form 8-K filed January 24, 2006.(16)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Current Report on Form 8-K filed March 9, 2006.(17)
    
    Incorporated by reference to the Exhibits filed with MSX
Internationals Current Report on Form 8-K filed March [21], 2006 
 95




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##### Table of Contents



SIGNATURES
  MSX INTERNATIONAL, INC.By:
    
    /S/ FREDERICK K. MINTURNFrederick K. MinturnExecutive Vice President and Chief Financial OfficerApril 18, 2006
  /S/ ROBERT NETOLICKA

Robert Netolicka
    
    Chief
Executive Officer
President and Director
(Principal Executive Officer)/S/ FREDERICK K. MINTURN

Frederick K. Minturn
    
    Executive
Vice President
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)/S/ ERWIN H. BILLIG

Erwin H. Billig
    
    Chairman
and Director/S/ DAVID E. COLE

David E. Cole
    
    Director
    
    April 18, 2006/S/ CHARLES E. CORPENING

Charles E. Corpening
    
    Director/S/ MICHAEL A. DELANEY

Michael A. Delaney
    
    Director/S/ RICHARD J. PURICELLI

Richard J. Puricelli
    
    Director
 96




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##### Table of Contents



FINANCIAL STATEMENT SCHEDULES
 PURSUANT TO ITEM 15(a)(2-c) of Form 10-K
 ANNUAL REPORT to the SECURITIES AND EXCHANGE COMMISSION
 For the fiscal year ended January 1, 2006
  PageV.
    
    Valuation and Qualifying Accounts
    
    F-2
 F-1




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##### Table of Contents



MSX INTERNATIONAL, INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
For the Three Fiscal Years Ended January 1, 2006
 AdditionsCharged
    
    ChargedBalance at
    
    (Credited)
    
    (Credited)
    
    
    
    
    
    Balance atBeginning of
    
    to costs
    
    to Other
    
    
    
    
    
    End ofDescription
    
    Period
    
    and Expenses
    
    Accounts
    
    Deductions
    
    Period2005 (A)Allowance for doubtful accounts
    
    
    1,944,683
    
    
    
    306,962
    
    
    
    
    
    
    
    750,187
    
    
    
    1,501,458Valuation allowance for deferred taxes
    
    
    45,099,456
    
    
    
    29,050,666
    
    
    
    
    
    
    
    
    
    
    
    74,150,1222004 (A)Allowance for doubtful accounts
    
    
    2,955,656
    
    
    
    298,540
    
    
    
    
    
    
    
    1,309,513
    
    
    
    1,944,683Valuation allowance for deferred taxes
    
    
    40,831,367
    
    
    
    2,610,456
    
    
    
    1,657,633
    
    
    
    
    
    
    
    45,099,4562003Allowance for doubtful accounts
    
    
    4,361,461
    
    
    
    2,580,610
    
    
    
    
    
    
    
    3,986,415
    
    
    
    2,955,656Valuation allowance for deferred taxes
    
    
    6,077,645
    
    
    
    33,688,257
    
    
    
    1,065,465
    
    
    
    
    
    
    
    40,831,367
 
 (A)
    
    Includes results of discontinued operations. F-2




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##### Table of Contents



EXHIBIT INDEX
 EXHIBIT NO.
    
    DESCRIPTION12.1
    
    Statement re: Computation of Ratio
of Earnings to Fixed Charges.21.1
    
    Subsidiaries of MSXI.31.1.1
    
    Certification by the Executive Vice President and Chief Financial Officer pursuant to Rules
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31.1.2
    
    Certification by the President and Chief Executive Officer pursuant to Rules
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32.1
    
    Certification pursuant 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of Sarbanes-Oxley Act of 200299.1
    
    Press Release dated April 17, 2006